The Special FX Market

41 Pages Posted: 5 Jun 2017 Last revised: 21 Jun 2017

See all articles by Louis Raffestin

Louis Raffestin

University of Orleans - Laboratoire d'économie d'Orléans

Date Written: June 3, 2017


We present a model of the foreign exchange market with 2 types of investors: cash-constrained carry traders, and short-sighed boundedly rational technical traders. We show that the interactions between both agents explain several of the well-documented puzzles of the exchange rate. In particular, the model provides a theoretical base for the fact that currencies of high interest rate countries tend to crash, sometimes without a clear fundamental trigger.

Keywords: Currency Crashes, Microstructure Effects, Technical Trading, Carry Trade, Funding Constraints

JEL Classification: E44, F31, G01, G17

Suggested Citation

Raffestin, Louis, The Special FX Market (June 3, 2017). Available at SSRN: or

Louis Raffestin (Contact Author)

University of Orleans - Laboratoire d'économie d'Orléans ( email )

Rue de Blois BP6739
Rue de Blois
Orléans cedex 2, Centre 45067

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