After the tide: Commodity currencies and global trade

Robert Ready, Nikolai Roussanov, Colin Ward

Research output: Contribution to journalArticle

3 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)69-86
Number of pages18
JournalJournal of Monetary Economics
Volume85
DOIs
StatePublished - Jan 1 2017

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Keywords

  • Carry trade
  • Commodity trade
  • Currency risk premia
  • Exchange rates
  • International risk sharing
  • Shipping
  • Trade costs

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