Debt composition and balance sheet effects of currency depreciation: a summary of the micro evidence |
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| Affiliation: | 1. The University of the South Pacific, Suva, Fiji Islands;2. Delhi School of Economics, Delhi University, Delhi 110007, India;1. Bank for International Settlements, Switzerland;2. Banco de España, Spain;3. CEPR, United Kingdom |
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| Abstract: | This paper surveys recent empirical evidence on the determinants of the currency composition of debt, and on the impact of exchange rate fluctuations on economic activity. It suggests that Latin American firms tend to partially match the composition of their debt with the currency composition of their income stream but the liability dollarization can reduce or possibly reverse the typical Mundell–Fleming result of expansionary devaluations. |
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