Carry trade and exchange-rate regimes

Description

"Carry-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 best policy alternative under real external shocks for emerging nations."

Subjects

Series Statement

• Working paper / Harvard Business School -- 13-074