Template-Type: ReDIF-Paper 1.0
Author-Name: Ryan Niladri Banerjee
Author-X-Name-First: Ryan
Author-X-Name-Last: Niladri Banerjee
Author-Name: Lena Boneva
Author-X-Name-First: Lena
Author-X-Name-Last: Boneva
Author-Name: Gabor Pinter
Author-X-Name-First: Gabor
Author-X-Name-Last: Pinter
Author-Name: Vladyslav Sushko
Author-X-Name-First: Vladyslav
Author-X-Name-Last: Sushko
Title: Monetary policy transmission to exchange rates: the role of currency carry trades
Abstract: Carry trade activity can shape the exchange rate response to monetary policy. Significant short positions of carry traders in funding currencies amplify the impact of policy tightening. This amplification arises from the unwinding of leveraged carry trade positions accumulated prior to the policy announcement, creating a state-dependent monetary policy transmission to the exchange rate. The currency trading strategies of hedge funds and other leveraged investors can play a key role in shaping the exchange rate response to monetary policy and therefore warrant careful monitoring.
Length: 8 pages
Creation-Date: 2026-05-06
File-URL: https://www.bis.org/publ/bisbull124.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/bisbull124.htm
File-Format: text/html
Number: 124
Handle: RePEc:bis:bisblt:124