EconPapers    
Economics at your fingertips  
 

Corporate dollar debt and depreciations: much ado about nothing?

Hoyt Bleakley and Kevin Cowan (kevin.cowan@uai.cl)

No 02-5, Working Papers from Federal Reserve Bank of Boston

Abstract: Much has been written recently about the problems for emerging markets that might result from a mismatch between foreign-currency denominated liabilities and assets (or income flows) denominated in local currency. In particular, several models, developed in the aftermath of financial crises of the late 1990s, suggest that the expansion in the \"peso\" value of \"dollar\" liabilities resulting from a devaluation could, via a net-worth effect, offset the expansionary competitiveness effect. Assessing which effect dominates, however, is ultimately an empirical matter. In this vein, we construct a new database with accounting information (including the currency composition of liabilities) for over 450 non-financial firms in five Latin American countries. We estimate, at the firm level, the reduced-form effect on investment of holding foreign-currency-denominated debt during an exchange-rate realignment. We consistently find that this effect is positive, contrary to the predicted sign of the net-worth effect. Additionally, we show that the estimated coefficient can be decomposed into competitiveness and net-worth effects, and we provide direct evidence that the competitiveness effect dominates the net-worth effect. We discuss some out-of-sample implications of these results.

Keywords: Foreign exchange; Devaluation of currency; Latin America (search for similar items in EconPapers)
Date: 2002
New Economics Papers: this item is included in nep-ifn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (76)

Downloads: (external link)
http://www.bostonfed.org/economic/wp/wp2002/wp025.htm (text/html)
http://www.bostonfed.org/economic/wp/wp2002/wp025.pdf (application/pdf)

Related works:
Working Paper: Corporate Dollar Debt and Depreciations: Much Ado about Nothing? (2005) Downloads
Working Paper: Corporate Dollar Debt and Depreciations: Much Ado About Nothing? (2005) Downloads
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:fip:fedbwp:02-5

Ordering information: This working paper can be ordered from
boston.library@bos.frb.org

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of Boston Contact information at EDIRC.
Bibliographic data for series maintained by Catherine Spozio (catherine.spozio@bos.frb.org).

 
Page updated 2025-03-19
Handle: RePEc:fip:fedbwp:02-5