Corporate Dollar Debt and Depreciations: Much Ado About Nothing?

Hoyt Bleakley () and Kevin Cowan
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Kevin Cowan: Senior Economist, Central Bank of Chile

The Review of Economics and Statistics, 2008, vol. 90, issue 4, pages 612-626

Abstract: Emerging markets firms often carry foreign-currency debt on their balance sheets. Following a depreciation, the expanding "peso" value of "dollar" liabilities could, via a net-worth effect, offset the expansionary competitiveness effect. To assess which effect dominates, we use accounting data (including the currency composition of liabilities) for 450+ nonfinancial firms in five Latin American countries in the 1990s. We find that firms holding more dollar debt do not invest less than their peso-indebted counterparts following a depreciation. We also show that these firms match the currency denomination of their liabilities with the exchange rate sensitivity of their profits. Copyright by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

Date: 2008
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Related works:
Working Paper: Corporate dollar debt and depreciations: much ado about nothing? (2002)
Working Paper: Corporate Dollar Debt and Depreciations: Much Ado About Nothing? (2005)
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