Why a financial practice that shouldn't work actually does
In short: The carry trade is a cornerstone of global finance that defies standard economic theory. Professor Jagjit Chadha explores this macroeconomic puzzle, explaining how investors successfully profit from interest rate gaps despite theoretical barriers.
The carry trade involves a sector of the banking and investment industry that seeks to generate profit from the differences in interest rates between different countries. While solid economic theory suggests this practice should be impossible, it remains a functional and prevalent reality in the markets.
Professor Jagjit Chadha, a specialist in money and banking, uses this phenomenon to highlight the friction between economic theory and real-world practice. By dissecting the carry trade, Chadha aims to identify what elements are missing from current models to improve our understanding of global macroeconomics.
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Sources
- Summary by Intellect · source: What is the Carry Trade? - Professor Jagjit Chadha
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