Are exporting firms always a good hedge against currency risk? Evidence from Central and Eastern European Countries

Michael Frömmel and M. Luetje
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M. Luetje: -

Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium from Ghent University, Faculty of Economics and Business Administration

Abstract: This paper analyzes the exchange rate exposure of exporting firms in (the so far rarely addressed) largest Eastern European transition economies, i.e. Russia and three EU accession countries (CEEC-3). It also controls for possible effects of different exchange rate regimes. Substantially improving the results from the existing literature we find for more than 80% of firms in our sample a significant exchange rate exposure. However, the magnitude and direction of firms’ exposure depends on the particular exchange rate and clearly differs between Russia and the CEEC-3. We find that share prices increase with a depreciation of the domestic currency and only against the US Dollar in Russia, but decrease with a depreciation and only against the Euro in the CEEC-3. Such substantial differences may result from a differing dominance of exposure channels in the respective economies, such as the countryspecific export structure and foreign debt. Finally, the switch from a pegged to a flexible exchange rate regime appears to be less important for exposure.

Keywords: Exchange Rate Exposure; Transition Economies; Central and Eastern Europe; International Finance (search for similar items in EconPapers)
JEL-codes: F3 G12 G15 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2014-02
New Economics Papers: this item is included in nep-cis, nep-opm and nep-tra
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Persistent link: https://EconPapers.repec.org/RePEc:rug:rugwps:14/873

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