Debt Composition and Balance Sheet Effects of Exchange Rate Volatility in Mexico: A Firm Level Analysis

Ignacio Lobato, Sangeeta Pratap and Alejandro Somuano ()
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Alejandro Somuano: Sociedad Hipotecaria Federal

No 405, Working Papers from Centro de Investigacion Economica, ITAM

Abstract: We use Mexican firm-level data to study the role of currency mismatches in exacerbating the negative effects of a devaluation in the corporate sector and to investigate what drives Mexican firms to borrow in foreign currency. Our results show that large firms and exporters tend to borrow more heavily in foreign currency. The presence of foreign currency denominated debt poses a significant risk to balance sheets at the time of devaluation. Our findings suggest that in Mexico, the balance sheet effects of a devaluation far outweigh the competitiveness effects.

Pages: 31 pages
Date: 2004-03
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Citations: View citations in EconPapers (16)

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http://ftp.itam.mx/pub/academico/inves/pratap/04-05.pdf First version, 2003-07 (application/pdf)

Related works:
Journal Article: Debt composition and balance sheet effects of exchange rate volatility in Mexico: a firm level analysis (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:cie:wpaper:0405

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