The Chilean peso exchange-rate carry trade and turbulence

Abstract

In this study we provide evidence regarding the relationship between the Chilean peso carry trade and currency crashes of the peso against other currencies. Using a rich dataset containing information from the local Chilean forward market, we show that speculation aimed at taking advantage of the recently large interest rate differentials between the peso and developedcountry currencies has led to several episodes of abnormal turbulence, as measured by the exchange-rate distribution’s skewness coefficient. In line with the interpretative framework linking turbulence to changes in the forward positions of speculators, we find that turbulence is higher in periods during which measures of global uncertainty have been particularly high.

Publication
CEPAL REVIEW
José Gabriel Carreño
José Gabriel Carreño
PhD Candidate in Economics

I am a Ph.D. student at Tilburg University. Prior to my enrollment as a Ph.D. student, I worked as a research assistant in the Financial Research Unit of the Central Bank of Chile. At the Central Bank, I did research related to financial networks and systemic risk of financial institutions. My current research lies in the intersection between Macroeconomics, Finance, and Labor Economics. I am particularly interested in understanding the macroeconomic implications of different contractual arrangements on the business cycle.