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Carry Trade and Negative Policy Rates in Switzerland : Low-lying fog or storm ?

Author

Listed:
  • Bruno Thiago Tomio

    (CREG - Centre de recherche en économie de Grenoble - UGA - Université Grenoble Alpes)

  • Guillaume Vallet

    (CREG - Centre de recherche en économie de Grenoble - UGA - Université Grenoble Alpes)

Abstract

This article uses data from hedge funds to investigate the behavior of the Swiss franc carry trade in the period of negative interest rate policy in Switzerland. In an effort to disentangle the funding currency and safe haven effects embedded in the Swiss carry trade activity with four target currencies (U.S. dollar, euro, Japanese yen, and British pound), we estimate structural vector autoregressive models with financial variables. Along with evidence for the funding currency and safe haven effects, results also show that: (i) the uncovered interest rate parity is violated for the U.S. dollar, euro and Japanese yen models, (ii) hedge funds are able to move asset prices, and (iii) an increased systemic risk is linked to a higher Swiss franc carry trade activity.

Suggested Citation

  • Bruno Thiago Tomio & Guillaume Vallet, 2021. "Carry Trade and Negative Policy Rates in Switzerland : Low-lying fog or storm ?," Post-Print halshs-03669561, HAL.
    • Handle: RePEc:hal:journl:halshs-03669561
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-03669561
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    Keywords

    Carry trade; Negative interest rate policy; Market volatility; Swiss franc; SVAR model;
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