Why Do Emerging Economies Borrow in Foreign Currency?

Olivier Jeanne

No 4030, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper explores the hypothesis that the dollarization of liabilities in emerging market economies is the result of a lack of monetary credibility. I present a model in which firms choose the currency composition of their debts so as to minimize their probability of default. Decreasing monetary credibility can induce firms to dollarize their liabilities, even though this makes them vulnerable to a depreciation of the domestic currency. The channel is different from the channel studied in the earlier literature on sovereign debt, and it applies to both private and public debt. The Paper presents some empirical evidence and discusses policy implications.

Keywords: Foreign currency debt; Liability dollarization; Monetary credibility; Financial crisis; Devaluation (search for similar items in EconPapers)
JEL-codes: F31 F36 G32 (search for similar items in EconPapers)
Date: 2003-08
New Economics Papers: this item is included in nep-ifn and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (110)

Downloads: (external link)
https://cepr.org/publications/DP4030 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Why Do Emerging Economies Borrow in Foreign Currency? (2003)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:4030

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP4030

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().