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Carry trade in developing and developed countries : a Granger-causality analysis with the Toda-Yamamo to approach

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  • Bruno Thiago Tomio

    (CREG - Centre de recherche en économie de Grenoble - UGA [2016-2019] - Université Grenoble Alpes [2016-2019])

Abstract

This paper explores empirically the relationship among speculative financial futures (carry trade), nominal exchange rates, and interest rates differentials in developing and developed countries, during the periods of quantitative easing, tapering and quantitative tightening based on the changes of policy interest rates in the United States (US). The public data supplied by the US Commodity Futures Trading Commission Large Trader Reporting Data is taken as a proxy for foreign exchange carry trade. With a time-series model for each country, we estimate the Granger causality using Vector Autoregressive (VAR) models as proposed by Toda and Yamamoto (1995). We investigate three developing countries (Brazil, Mexico, and Russia) and seven developed countries (Australia, Canada, Euro area countries, Japan, New Zealand, Switzerland, and the United Kingdom). Our findings give support to a better understanding of the relationship between foreign exchange activity and monetary policy.

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  • Bruno Thiago Tomio, 2019. "Carry trade in developing and developed countries : a Granger-causality analysis with the Toda-Yamamo to approach," Post-Print halshs-03131073, HAL.
    • Handle: RePEc:hal:journl:halshs-03131073
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03131073
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    Cited by:

    1. Bruno Thiago Tomio & Guillaume Vallet, 2021. "Carry Trade and Negative Policy Rates in Switzerland : Low-lying fog or storm ?," Post-Print halshs-03669561, HAL.
    2. Zhang, Ziyun & Chen, Su & Li, Bo, 2022. "Does previous carry trade position affect following investors' decision-making and carry returns?," International Review of Financial Analysis, Elsevier, vol. 80(C).

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    Keywords

    carry trade; foreign exchange market; interest rate differentials; Toda–Yamamoto causality;
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