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Exchange Rate Exposure and Firm Dynamics

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

No 2016-278-05, Working Papers from Department of Economics, University of Houston

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 hetero- geneity 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; uncovered interest rate parity. (search for similar items in EconPapers)
JEL-codes: F30 F34 F36 (search for similar items in EconPapers)
Date: 2016-10-04
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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 (2018) Downloads
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