Identifying the exchange-rate balance sheet effect over firms

Cesar Carrera

No 66, Working Papers from Peruvian Economic Association

Abstract: I use firm-level data on investment and evaluate the balance sheet effect of changes in the exchange rate. The fact that a depreciation not only generates an expansion (for a small open economy that exports raw materials) but also has the potential of recession (in a dollarized economy in which most firms’ liabilities are in foreign currency) brings up the question on what the final effect of a depreciation over either investment or production is. Following Bleakley and Cowan (2008), I evaluate if this channel is operating. My estimations indicates that this effect tends to disappear when terms of trade are considered, result that is robust to different specifications.

Keywords: Balance sheet effect; exchange rate; investment (search for similar items in EconPapers)
JEL-codes: E22 F41 G31 (search for similar items in EconPapers)
Date: 2016-04
New Economics Papers: this item is included in nep-cfn, nep-int and nep-mac
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Citations: View citations in EconPapers (2)

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