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Exchange Rate Exposure and Firm Dynamics

Juliana Salomao and Liliana Varela ()
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Juliana Salomao: University of Minnesota

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

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. JEL Classification: F30; F34; F36 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-ifn
Date: 2018
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https://warwick.ac.uk/fac/soc/economics/research/c ... /364-2018_varela.pdf

Related works:
Working Paper: Exchange Rate Exposure and Firm Dynamics (2018) Downloads
Working Paper: Exchange Rate Exposure and Firm Dynamics (2018) Downloads
Working Paper: Exchange Rate Exposure and Firm Dynamics (2018) Downloads
Working Paper: Exchange Rate Exposure and Firm Dynamics (2016) Downloads
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