Exchange Rate Volatility and Economic Performance in Peru: A Firm Level Analysis

Luis Carranza, Juan M. Cayo and Jose Enrique Galdon-Sanchez ()
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Juan M. Cayo: Universidad San Martín de Porres

No 12/03, Faculty Working Papers from School of Economics and Business Administration, University of Navarra

Abstract: This paper analyzes the impact of the exchange rate volatility on the performance of the Peruvian economy using financial information from 163 non-financial listed firms. We find evidence that, for firms holding dollar-denominated debt, investment decisions are negatively affected by real exchange rate depreciation. The reasons behind this result are: (i) the high degree of liability dollarization and currency mismatch that create the conditions for a balance sheet effect and a financial stress in the aftermath of a currency depreciation, (ii) the strong bank-lending channel that follows and reinforces the balance sheet effect, (iii) the domestic demand shrinkage that affects severely the firms sales, and (iv) the relatively small and poorly diversified export sector.

JEL-codes: E22 F41 G31 (search for similar items in EconPapers)
Date: 2003-09
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Published, Emerging Markets Review, 2003, vol. 4(4): pp. 472-496

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Related works:
Journal Article: Exchange rate volatility and economic performance in Peru: a firm level analysis (2003)
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Persistent link: http://EconPapers.repec.org/RePEc:una:unccee:wp1203

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