Program (by speaker) > Jeanneret Alexandre

This paper helps explain fluctuations in the high-yield currencies involved in the carry trade. We show that commodity price shocks drive variations in these currencies but only during episodes of financial distress, as measured by high funding illiquidity, financial uncertainty, or currency volatility. This asymmetric relation is induced by the direct responses of currencies to commodity price shocks rather than by an adjustment in a country's macroeconomic fun-damentals. Further, we provide evidence that this asymmetry relates to changes in financial conditions rather than to changes in the business cycle. Overall, these findings contribute to our understanding of the downside risk faced by carry traders.