TY  - JOUR
AU  - Burnside,A. Craig
AU  - Eichenbaum,Martin S.
AU  - Kleshchelski,Isaac
AU  - Rebelo,Sergio
TI  - Do Peso Problems Explain the Returns to the Carry Trade?
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14054
PY  - 2008
Y2  - June 2008
UR  - http://www.nber.org/papers/w14054
L1  - http://www.nber.org/papers/w14054.pdf
N1  - Author contact info:
Craig Burnside
Department of Economics
Duke University
213 Social Sciences Building
Durham, NC 27708-0097
Tel: 919/660-1808
Fax: 919/684-8974
E-Mail: craig.burnside@duke.edu

Martin S. Eichenbaum
Department of Economics
Northwestern University
2003 Sheridan Road
Evanston, IL  60208
Tel: 847/491-8232
Fax: 847/491-7001
E-Mail: eich@northwestern.edu

Isaac Kleshchelski
Olin Business School
Washington University in St. Louis
1 Brookings Drive
St. Louis, MO 63130-4899
E-Mail: KLESHCHELSKI@WUSTL.EDU

Sergio Rebelo
Northwestern University
Kellogg School of Management
Department of Finance
Leverone Hall
Evanston, IL  60208-2001
Tel: 847/467-2329
Fax: 847/491-5719
E-Mail: s-rebelo@northwestern.edu
AB  - We study the properties of the carry trade, a currency speculation strategy in which an investor borrows low-interest-rate currencies and lends high-interest-rate currencies. This strategy generates payoffs which are on average large and uncorrelated with traditional risk factors. We argue that these payoffs reflect a peso problem. The underlying peso event features high values of the stochastic discount factor rather than very large negative payoffs.
ER  -