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Currency Mismatches and Vulnerability to Exchange Rate Shocks: Nonfinancial Firms in Colombia

Sergio Restrepo, Juan Medellín (), Cesar Pabon, Adolfo Barajas and Roberto Steiner

No 2017/263, IMF Working Papers from International Monetary Fund

Abstract: After building up foreign currency denominated (FC) liabilities over several years, Colombian firms might be vulnerable to a shift in external conditions. We undertake three empirical exercises to better understand these vulnerabilities. First, we identify the determinants of FC borrowing. Second, we investigate the implications for real activity, finding a balance sheet effect that transmits exchange rate fluctuations to investment and is asymmetric, much stronger for depreciations than for appreciations. Finally, we find that foreign exchange derivatives are not used solely for hedging, due in part to monetary authority intervention to smooth exchange rate volatility. However, a full explanation remains open for future research.

Keywords: WP; FC debt; foreign currency; exchange rate; trade credit; Colombia; depreciation; balance sheet effects; exchange rate derivatives; balance sheet exposure; FC assets; debt issuance; Financial statements; Hedging; Exports; Exchange rates; Global (search for similar items in EconPapers)
Pages: 41
Date: 2017-11-22
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