Exchange Rate Exposure and Firm Dynamics

Liliana Varela and Juliana Salomao
Additional contact information
Juliana Salomao: University of Minnesota

The Warwick Economics Research Paper Series (TWERPS) from University of Warwick, Department of Economics

Abstract: This paper develops a firm-dynamics model with endogenous currency debt composition to study financing and investment decisions in developing economies. In our model, foreign currency borrowing arises from a trade-off between exposure to currency risk and growth. There is cross-sectional heterogeneity in these decisions in two dimensions. First, there is selection into foreign currency borrowing, as only productive firms employ it. Second, there is heterogeneity in firms’ share of foreign currency loans, driven by their potential growth. We assess econometrically the pattern of foreign currency borrowing using firm-level census data on Hungary, calibrate the model and quantify its aggregate impact.

Keywords: firm dynamics foreign currency; debt; currency mismatch; uncovered interest rate parity (search for similar items in EconPapers)
JEL-codes: F30 F34 F36 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-tra
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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https://warwick.ac.uk/fac/soc/economics/research/w ... werp_1157_varela.pdf

Related works:
Journal Article: Exchange Rate Exposure and Firm Dynamics (2022)
Working Paper: Exchange rate exposure and firm dynamics (2022)
Working Paper: Exchange rate exposure and firm dynamics (2020)
Working Paper: Exchange Rate Exposure and Firm Dynamics (2018)
Working Paper: Exchange Rate Exposure and Firm Dynamics (2018)
Working Paper: Exchange Rate Exposure and Firm Dynamics (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:wrk:warwec:1157

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