April 23, 2014
THE FIELDS INSTITUTE FOR RESEARCH IN MATHEMATICAL SCIENCES
Sojourns in Nonlinear Economics 2013
Neil Lancastle
University of Leicester
Fields Institute, Stewart Library, 222 College Street, Toronto

Organizer:
Matheus Grasselli
(grassel<at>fields.utoronto.ca)

Overview

Economist and researcher Neil Lancastle is visiting the Fields Institute for five weeks this fall as part of the INET-sponsored programme 'Modelling Minsky - a Dynamical Systems Approach'. These informal presentations will unravel the 'carry trade', the long-term profits that speculators have earned in currency markets using price data alone, something that should not be possible if currency markets are efficient.

Neil's research interests include stock-flow consistent economics, accounting and financial regulation. Neil worked for twenty years on trading, portfolio management and other systems for companies such as Barclays Global Investors and UBS. He is completing a PhD at Leicester University, where he teaches finance, international business and accounting, has an MBA from the Open University, and studied Natural Sciences then Social and Political Sciences at Cambridge.
Schedule

Oct. 21 1:30 p.m.

Stewart Library, Fields Institute

Going up by the stairs and coming down in the elevator: the story of the carry trade

This presentation unravels the G5 carry trade. A typical strategy is simulated to show the historical returns. Three phases stand out: the Greenspan 'put', the Yen carry trade and the Lehman collapse. Preliminary results show central banks are price givers during crises, with no evidence for risk premia as predicted under CAPM. A method to estimate the impact of currency movements on the financial account is discussed. The overall impression is that capital markets do not clear in the medium-long term, and that central banks clear up the mess.

Oct. 22 1:30 p.m.

Stewart Library, Fields Institute

Accounting for the carry trade using stock-flow-consistent models

This presentation uses T-accounts to illustrate the dependencies between capital accumulation, aggregate demand and aggregate supply. Government provides stability by supporting demand through income redistribution. Adding shadow banking reduces yields, a reduction that is observed empirically. With differences in financial regulation, carry trades emerge. Despite the accounting constraints, the model has dynamic properties and outcomes are uncertain.

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