Carry Trade, Reserve Accumulation, and Exchange-Rate Regimes
AbstractCarry-trade activity and foreign participation in local-currency-bond markets in emerging countries have increased dramatically over the past decade. In light of these trends, we revisit the question of the optimal exchange-rate regime when developing countries can borrow internationally with local-currency-denominated debt. We find that, as local-currency-bond markets develop, a “pseudo-flexible regime,” whereby a country accumulates reserves in conjunction with debt, to be the policy that most effectively stabilizes fluctuations under real external shocks for emerging nations.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19098.
Date of creation: Jun 2013
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Find related papers by JEL classification:
- F31 - International Economics - - International Finance - - - Foreign Exchange
- F34 - International Economics - - International Finance - - - International Lending and Debt Problems
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- NEP-ALL-2013-06-16 (All new papers)
- NEP-MON-2013-06-16 (Monetary Economics)
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