The rise in foreign currency bonds: The role of US monetary policy and capital controls

Philippe Bacchetta, Rachel Cordonier and Ouarda Merrouche

Journal of International Economics, 2023, vol. 140, issue C

Abstract: An unintended consequence of loose US monetary policy is the increase in currency risk exposure abroad. Using firm-level data on corporate bond issuances in 16 emerging market economies (EMEs) between 2003 and 2017, we find that EME companies are more likely to issue bonds in foreign currency when US interest rates are low. This effect is driven by non-exporters. Interestingly, capital controls on bond inflows significantly decrease the likelihood of issuing in foreign currency and can even eliminate the adverse impact of low US interest rates. In contrast, macroprudential foreign exchange regulations increase foreign currency issuances among nonfinancial companies.

Keywords: Foreign currency; Corporate bonds; Emerging markets; Capital controls; Currency risk (search for similar items in EconPapers)
JEL-codes: E44 G21 G30 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (6)

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Related works:
Working Paper: The rise in foreign currency bonds: the role of US monetary policy and capital controls (2021)
Working Paper: The Rise in Foreign Currency Bonds: The Role of US Monetary Policy and Capital Controls (2020)
Working Paper: The Rise in Foreign Currency Bonds: The Role of US Monetary Policy and Capital Controls (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:140:y:2023:i:c:s0022199622001416

DOI: 10.1016/j.jinteco.2022.103709

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