Carry Trade Strategies and Monetary Policy Instruments of Their Formation and Implementing

<p>Operation of carry trade strategy is based on borrowing low-interest rate currencies in order to convert it into the high interest rate currency. According to experts, existence of the arbitrage strategy is due to the failure of uncovered interest rate parity principle. The carry trade operation involves quite huge sums of money and, as a consequence, dominates between any other capital flows.</p><p>Russian ruble has become one of the most popular target currencies in the financial market, along with the Australian dollar (AUD). Artificial tightness does not allow the ruble show higher volatility that would have been natural for it. For a long time Russia has the high level of return on financial assets, that is typical for emerging economies. Thus, there are some incentives for the implementation of the carry trade strategies.</p><p>Public authorities proclaim the targeting of inflation as the primary objective of monetary policy in the Russian Federation. In the transition to inflation targeting the volatility of the exchange rate and interest rate are going to be increased compared to the current regime (that is aimed at controlling the current exchange rate).</p><p>In this regard, the actual modification is indicative of existing models for the orientation of the monetary authorities in the country. Analysis of the impulse response functions showed that the Taylor model, adapted to the Russian condition, can perform signaling role, thereby illustrating of the investors mood in the carry trade market.</p><p>&nbsp;</p>