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The article shows that carry trades to Central and Eastern Europe (CEE) were lucrative during the boom period 2004�2006 when interest rate spreads between the funding and investment currencies were high. In contrast, when liquidity risk and exchange rate volatility increased after 2007, carry trades were unprofitable. The analysis further suggests that there is a link between the exchange rate regime and carry trade returns. Overall, exchange rate stabilization, particularly via managed floats, seems to go along with the highest profit opportunities.
