The optimal currency composition of external debt
Stijn Claessens ()
No 14, Policy Research Working Paper Series from The World Bank
The increased volatility of exchange rates, interest rates and goods prices has focused fresh attention on the importance for developing countries of reducing their risks in these markets. Although, these countries generally cannotuse such conventional hedging instruments as currency and commodity futures, they can use the currency composition of their external debt to hedge against exchange rates and commodity prices. In this line, this paper uses findings from the literature on optimal portfolio theory to discuss the optimal currency composition of external debt. The analysis considers a small open economy facing a perfect world capital market and a large number of perfect commodity markets. The paper derives the optimal currency composition of the country's aggregate assets and external liabilities and describes the necessary estimations and computations, including how to take into account the currency composition of existing external liabilities.
Keywords: Economic Theory&Research; Environmental Economics&Policies; Fiscal&Monetary Policy; TF054105-DONOR FUNDED OPERATION ADMINISTRATION FEE INCOME AND EXPENSE ACCOUNT; Financial Intermediation (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1) Track citations by RSS feed
Downloads: (external link)
http://www-wds.worldbank.org/external/default/WDSC ... d/PDF/multi0page.pdf (application/pdf)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:14
Access Statistics for this paper
More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().