Exchange Rate Volatility and Economic Performance in Peru: A Firm Level Analysis

Luis Carranza (), Juan M. Cayo and José E. Galdón-Sánchez ()
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Juan M. Cayo: Universidad San Martín de Porres
José E. Galdón-Sánchez: Public University of Navarra
Authors registered in the RePEc Author Service: Jose Enrique Galdon-Sanchez ()

No 12/03, Faculty Working Papers from School of Economics and Business Administration, University of Navarra

Abstract: This paper analyzes the impact of the exchange rate volatility on the performance of the Peruvian economy using financial information from 163 non-financial listed firms. We find evidence that, for firms holding dollar-denominated debt, investment decisions are negatively affected by real exchange rate depreciation. The reasons behind this result are: (i) the high degree of liability dollarization and currency mismatch that create the conditions for a balance sheet effect and a financial stress in the aftermath of a currency depreciation, (ii) the strong bank-lending channel that follows and reinforces the balance sheet effect, (iii) the domestic demand shrinkage that affects severely the firms sales, and (iv) the relatively small and poorly diversified export sector.

JEL-codes: E22 F41 G31 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2003-09-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (72)

Published, Emerging Markets Review, 2003, vol. 4(4): pp. 472-496

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Journal Article: Exchange rate volatility and economic performance in Peru: a firm level analysis (2003)
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