Carry Trade and Currency Mix of Corporate Debt

Lorena Keller, Anna Cieslak and Manuel Adelino
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Lorena Keller: Northwestern University
Anna Cieslak: Duke University
Manuel Adelino: Duke University

No 1265, 2017 Meeting Papers from Society for Economic Dynamics

Abstract: We exploit bank-by-firm data of the Peruvian economy to show that the mix of domestic and foreign currency debt of companies is strongly related to carry trade returns. This effect is driven by large corporations and is mostly absent for medium-sized firms. We document that the relationship is not driven by industry shocks or naturally hedged firms and is largely exogenous to the shocks specific to the Peruvian economy. We isolate the role of bank credit supply from firm credit demand and study the role of macro-prudential policies in mitigating corporate currency mismatches.

Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed017:1265

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