Carry trades, agent heterogeneity and the exchange rate

Abstract In this paper, we investigate the equilibrium properties of the exchange rate within the framework of a dynamic heterogeneous agent model. Carry traders, fundamentalists and chartists are incorporated into our heterogeneous agent model. We find that carry trading plays an important role in exchange rate markets and can cause an exchange rate to deviate from its fundamental equilibrium. In addition, we use the unscented Kalman filter to estimate the heterogeneous agent model. The results show that carry traders’ activities are significantly affected by the interest rate differential between two currencies.

• Publication year

  2019

• Venue

  International Review of Economics and Finance

• Publication date

  2019-11-01

• Fields of study

  Computer Science, Economics

• Identifiers
  DOI 10.1016/J.IREF.2019.07.001
• External record

  Open on Semantic Scholar

• Source metadata

  Semantic Scholar

• No claims are published for this paper.

• No concepts are published for this paper.

• Monetary model of exchange rate determination under floating and non-floating regimes

  2018cited by this paper
• Empirical validation of agent-based models

  2018cited by this paper
• The Impact of the Tobin Tax in a Heterogeneous Agent Model of the Foreign Exchange Market

  2017cited by this paper
• A representative agent asset pricing model with heterogeneous beliefs and recursive utility

  2016cited by this paper
• Dodging the steamroller: fundamentals versus the carry trade

  2016cited by this paper
• Heterogeneous agents, the financial crisis and exchange rate predictability

  2015cited by this paper
• A Behavioral Macroeconomic Model of Exchange Rate Fluctuations with Complex Market Expectations Formation

  2015cited by this paper
• Carry trade and foreign exchange rate puzzles

  2013cited by this paper
• Learning to Forecast the Exchange Rate: Two Competing Approaches

  2013cited by this paper
• Dynamic expectation formation in the foreign exchange market

  2013cited by this paper
• Explaining dispersion in foreign exchange expectations: A heterogeneous agent approach

  2012cited by this paper
• Dynamic Forecasting Rules and the Complexity of Exchange Rate Dynamics

  2011cited by this paper
• Uncertainty aversion in a heterogeneous agent model of foreign exchange rate formation

  2009cited by this paper
• Heterogeneity of Agents and Exchange Rate Dynamics: Evidence from the EMS

  2008cited by this paper
• Complex Evolutionary Systems in Behavioral Finance

  2008cited by this paper
• Heterogeneous expectations, exchange rate dynamics and predictability

  2007cited by this paper
• Exchange rate puzzles: A tale of switching attractors

  2006cited by this paper
• Does the forward premium anomaly depend on the sample period used or on the sign of the premium

  2005cited by this paper
• The Exchange Rate and its Fundamentals in a Complex World

  2005cited by this paper
• Heterogeneity of agents, transactions costs and the exchange rate

  2005cited by this paper
• Monetary Policy and Long-Horizon Uncovered Interest Parity

  2004cited by this paper
• Unscented filtering and nonlinear estimation

  2004cited by this paper
• Heterogeneous beliefs and routes to chaos in a simple asset pricing model

  1998cited by this paper
• A rational route to randomness

  1997cited by this paper
• Exchange Rates and Fundamentals: Evidence on Long-Horizon Predictability

  1995cited by this paper
• Banking on currency forecasts: How predictable is change in money?

  1995cited by this paper
• Using Survey Data to Test Some Standard Propositions Regarding Exchange Rate Expectations

  1985cited by this paper
• Journal of Economic Behavior & Organization an Empirical Examination of Heterogeneity and Switching in Foreign Exchange Markets

  year unknowncited by this paper

• Influence of psychological exchange rates (PER) on forex price formation: theory, empirical, and experimental evidence

  2024cites this paper
• Exchange rate stability and expectation management under heterogeneous expectations

  2024cites this paper
• International interest rate arbitrage: Study on a novel strategy

  2024cites this paper
• Tobin Tax, Carry Trade, and the Exchange Rate Dynamics

  2023cites this paper
• Heterogeneity of agents, transaction costs and oil price dynamics

  2023cites this paper
• Uncertainty aversion, carry trades and agent heterogeneity in the FX market

  2020cites this paper