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UIP, the Carry Trade and Minsky’s Financial Instability Hypothesis in the CEE and CIS

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Poland and the Eurozone

Part of the book series: Studies in Economic Transition ((SET))

Abstract

The carry trade is the attempt to take advantage of deviations from uncovered interest parity (UIP). UIP asserts that, given the free flow of capital, the expected change in an exchange rate over a specific period should be equal to the interest rate differential for the two currencies for the same period. If this is not the case, there is an opportunity to make an abnormal return, using the carry trade, by borrowing a low interest-rate currency and investing the proceeds in one where rates are relatively high. A large body of evidence suggests that UIP does not hold.

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Authors
  1. Robert Hayward
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  2. Jens Hölscher
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Editor information

Editors and Affiliations

  1. Bournemouth University, UK

    Jens Hölscher (Professor of Economics and Head of Department) (Professor of Economics and Head of Department)

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© 2014 Robert Hayward and Jens Hölscher

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Hayward, R., Hölscher, J. (2014). UIP, the Carry Trade and Minsky’s Financial Instability Hypothesis in the CEE and CIS. In: Hölscher, J. (eds) Poland and the Eurozone. Studies in Economic Transition. Palgrave Macmillan, London. https://doi.org/10.1057/9781137426413_7

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