After the tide: Commodity currencies and global trade

Citation data:

Journal of Monetary Economics, ISSN: 0304-3932, Vol: 85, Page: 69-86

Publication Year:
2017
Usage 53
Abstract Views 39
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DOI:
10.1016/j.jmoneco.2016.11.005
Author(s):
Robert Ready, Nikolai Roussanov, Colin Ward
Publisher(s):
Elsevier BV
Tags:
Economics, Econometrics and Finance
article description
The decade prior to the Great Recession saw a boom in global trade and rising transportation costs. High-yielding commodity exporters׳ currencies appreciated, boosting carry trade profits. The Global Recession sharply reversed these trends. We interpret these facts with a two-country general equilibrium model that features specialization in production and endogenous fluctuations in trade costs. Slow adjustment in the shipping sector generates boom–bust cycles in freight rates and, as a consequence, in currency risk premia. We validate these predictions using global shipping data. Our calibrated model explains about 57% of the narrowing of interest rate differentials post-crisis.

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