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Oscar Jorda and Alan Taylor: The carry trade can be profitable (The Economist)

Research by Oscar Jorda and Alan Taylor is the featured research in the Economics Focus section of the December 10 issue of the Economist Magazine; see Economist article. The original research paper on “The Carry Trade and Fundamentals: Nothing to Fear But FEER Itself” suggests a way to make a steady profit in the carry trade where investors borrow low-yielding currencies and lend (invest in) high-yielding currencies. This trade is big - around $1 trillion was estimated to be in the yen carry trade in 2007.