Corporate currency hedging and currency crises

Andreas Röthig, Willi Semmler and Peter Flaschel

Publications of Darmstadt Technical University, Institute for Business Studies (BWL) from Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL)

Abstract: We examine the impact of corporate currency hedging on economic stability by introducing hedging activity in a Mundell-Fleming-Tobin framework for analyzing currency and financial crises. The ratio between hedged and unhedged firms is modelled depending on firm size as well as hedging costs. The results indicate that, with an increasing fraction of hedged firms in an economy, the magnitude of a crisis decreases and from a specific hedging level onwards currency crises are ruled out. In order to improve corporate risk management access to hedging instruments should be made possible and hedging costs should be reduced.

Date: 2008
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Published in Darmstadt Discussion Papers in Economics . 147 (2008)

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Related works:
Chapter: Corporate Currency Hedging and Currency Crises (2009)
Working Paper: Corporate currency hedging and currency crises (2005)
Working Paper: Corporate Currency Hedging and Currency Crises (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:dar:wpaper:77385

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