Adrian, 2008a, “Liquidity, Monetary Policy and Financial Cycles,” Current Issues in Economics and Finance, Vol. 14, No. 1, Federal Reserve Bank of New York. Available via the Internet: www.newyorkfed.org/research/current_issues/ci14-1.pdf.
Adrian, 2008b, “Financial Intermediary Leverage and Value at Risk,” Federal Reserve Bank of New York and Princeton University Working Paper. Available via the Internet: www.princeton.edu/~hsshin/working.htm.
Bernanke, B., 2004a, Central Bank Talk and Monetary Policy, Remarks at the Japan Society Corporate Luncheon, New York, October 7. Available via the Internet: www.federalreserve.gov/boarddocs/speeches/2004/200410072/default.htm.
Bernanke, B., 2004b, The Logic of Monetary Policy, Remarks at the National Economists Club, December 2. Available via the Internet: www.federalreserve.gov/boarddocs/speeches/2004/20041202/default.htm.
Brunnermeier, Markus, forthcoming, Stefan Nagel, and Lasse Pedersen, 2009, “Carry Trades and Currency Crashes,” NBER Macroeconomics Annual 2008 (Cambridge, Massachusetts, National Bureau of Economic Research).
Burnside, Craig, Martin Eichenbaum, Isaac Kleshchelski, and Sergio Rebelo, 2007, “The Returns to Currency Speculation,” NBER Working Paper No. 12489 (Cambridge, Massachusetts, National Bureau of Economic Research).
Gagnon, Joseph E., and Alain Chaboud, 2007, “What Can the Data Tell Us About Carry Trades in Japanese Yen?” FRB International Finance Discussion Paper No. 899 (Washington, Board of Governors, Federal Reserve System).
Greenlaw, D., J. Hatzius, A. Kashyap, and H.S. Shin, 2008, Leveraged Losses: Lessons from the Mortgage Market Meltdown, Report of the U.S. Monetary Form, No. 2. Available via the Internet: www.chicagogsb.edu/usmpf/docs/usmpf2008confdraft.pdf
Gyntelberg, Jacob, and Eli M. Remolona, 2007, “Risk in Carry Trades: A Look at Target Currencies in Asia and the Pacific,” in BIS Quarterly Review, December (Basel, Bank for International Settlements).
Jimenez, G., and J. Saurina, 2006, “Credit Cycles, Credit Risk, and Prudential Regulation,” International Journal of Central Banking, Vol. 2, No. 2, pp. 65–98.
Plantin, Guillaume, and Hyun Song Shin, 2006, “Carry Trades and Speculative Dynamics,” London Business School and Princeton University Working Paper.
Masazumi Hattori is director and senior economist, deputy head of economics section, Institute for Monetary and Economic Studies, Bank of Japan. Hyun Song Shin is professor of economics at Princeton University. The authors are grateful to Tam Bayoumi, Bob Flood, Kazuo Fukuda, Dick Herring, Isao Hishikawa, Wataru Takahashi and a referee for their suggestions, and to Tobias Adrian for encouragement and support.
“Debt Reckoning: US Receives a Margin Call,” Wall Street Journal, March 14, 2008.
See Brunnermeier (2008); BIS (2008); IMF (2008); and Greenlaw and others (2008) for a chronology of the credit crisis of 2007-08.
See Shin (2008) for the details of the analysis.
The Japan premium explains the very sharp spike upward in the “bills bought” component of foreign banks’ assets, as shown in Figure 7.
The t-statistic is -7.15.and the R2 is 0.34.
There is some evidence that some of the funds captured in the interoffice accounts are used to purchase Japanese securities on the books of the headquarters bank. Thus, not all of the interoffice accounts will reflect funds channeled out of Japan for use overseas.
The reason why we take changes rather than growth rates for the net interoffice accounts is that the series changes sign frequently, with some observations close to zero.
We will see later some independent confirmation of the role of the interest rate differential.
See also Burnside and others (2007) on the excess returns on the carry trade. See Gyntelberg and Remolona (2007) for the evidence of carry trades in other Asian currencies.