The diverse effects of currency crises on multinational and local firms: The use of foreign currency debt

2021 ◽  
pp. 100706
Author(s):  
Jing Jin ◽  
Rose C. Liao ◽  
Gilberto Loureiro
Keyword(s):  
Currency Crises ◽  
Foreign Currency ◽  
Foreign Currency Debt ◽  
Local Firms

Why hedge currency exposure with foreign currency debt?

2013 ◽  
Vol 26 (2) ◽  
pp. 258-289 ◽  
Author(s):  
Milagros Vivel‐Búa ◽  
Luis Otero‐González ◽  
Sara Fernández‐López ◽  
Pablo Durán‐Santomil
Keyword(s):  
Foreign Currency ◽  
Currency Exposure ◽  
Foreign Currency Debt

Real Exchange Rate Overvaluation and WTO Dispute Initiation in Developing Countries

2016 ◽  
Vol 70 (4) ◽  
pp. 797-821 ◽  
Author(s):  
Timm Betz ◽  
Andrew Kerner
Keyword(s):  
Developing Countries ◽  
Exchange Rate ◽  
Trade Policy ◽  
Foreign Currency ◽  
Real Exchange Rates ◽  
Trade Disputes ◽  
Trade Dispute ◽  
Competitive Disadvantage ◽  
Dispute Initiation ◽  
Foreign Currency Debt

AbstractWhy and when do developing countries file trade disputes at the World Trade Organization (WTO)? Although financial conditions have long been considered an important driver of trade policy, they have been largely absent from the literature on trade disputes. We argue that developing country governments bring more trade dispute to the WTO when overvalued real exchange rates put exporters at a competitive disadvantage. This dynamic is most prevalent in countries where large foreign currency debt burdens discourage nominal currency devaluations that would otherwise serve exporters’ interests. Our findings provide an explanation for differences in dispute participation rates among developing countries, and also suggest a new link between exchange rate regimes and trade policy.

scholarly journals Household Debt Revaluation and the Real Economy: Evidence from a Foreign Currency Debt Crisis

2020 ◽  
Vol 110 (9) ◽  
pp. 2667-2702 ◽  
Author(s):  
Emil Verner ◽  
Győző Gyöngyösi
Keyword(s):  
Foreign Currency ◽  
Debt Crisis ◽  
Spillover Effects ◽  
Household Debt ◽  
Sudden Increase ◽  
Real Economy ◽  
Balance Sheets ◽  
Default Rates ◽  
Foreign Currency Debt ◽  
The Impact

We examine the consequences of a sudden increase in household debt burdens by exploiting variation in exposure to household foreign currency debt during Hungary’s late-2008 currency crisis. The revaluation of debt burdens causes higher default rates and a collapse in spending. These responses lead to a worse local recession, driven by a decline in local demand, and negative spillover effects on nearby borrowers without foreign currency debt. The estimates translate into an output multiplier on higher debt service of 1.67. The impact of debt revaluation is particularly severe when foreign currency debt is concentrated on household, rather than firm, balance sheets. (JEL E21, E32, F34, G51)

scholarly journals What's wrong with Modern Money Theory: macro and political economic restraints on deficit-financed fiscal policy

2020 ◽  
Vol 8 (4) ◽  
pp. 472-493
Author(s):  
Thomas Palley
Keyword(s):  
Fiscal Policy ◽  
Foreign Currency ◽  
Political Resistance ◽  
Economic Costs ◽  
Fiscal Space ◽  
Fiscal Austerity ◽  
Modern Money Theory ◽  
The Moment ◽  
Political Economic ◽  
Foreign Currency Debt

The essential claim of Modern Money Theory (MMT) is sovereign currency issuing governments, with flexible exchange rates and without foreign currency debt, are financially unconstrained. This paper analyses the macroeconomic arguments behind that claim and shows they are suspect. MMT underestimates the economic costs and exaggerates the capabilities of deficit-financed fiscal policy. Those analytic shortcomings render it poor economics. However, MMT's claim that sovereign governments are financially unconstrained is proving a popular political polemic. That is because current distressed economic conditions have generated political resistance to fiscal austerity, and MMT fits the moment by countering the neoliberal polemic that government lacks fiscal space because it is akin to a household.

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