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A Comprehensive Approach to the Measurement of Macroeconomic Exposure

In: Risk Management

Author

Listed:
  • Lars Oxelheim

    (Lund University and IUI)

  • Clas Wihlborg

    (Copenhagen Business School)

Abstract

In this chapter we emphasize the importance of recognizing the interdependence among exchange rates, interest rates and inflation rates in measuring corporate exposure. First, several issues relating to management’s views of the macroeconomic environment, as well as the firm’s objective and structure will be discussed. These issues must be addressed before multiple regression analysis can be implemented with the purpose of estimating exposures. Volvo Cars is then used to illustrate how economic exposure to exchange rates and other macroeconomic variables is estimated using quarterly cashflows as the firm’s target variable. The use of cash flow exposure coefficients for evaluating exposure and choosing currency denomination of liabilities is discussed, and an out-of-sample analysis of the estimated exposure coefficients is carried out.

Suggested Citation

  • Lars Oxelheim & Clas Wihlborg, 2005. "A Comprehensive Approach to the Measurement of Macroeconomic Exposure," Springer Books, in: Michael Frenkel & Markus Rudolf & Ulrich Hommel (ed.), Risk Management, edition 0, pages 513-536, Springer.
    • Handle: RePEc:spr:sprchp:978-3-540-26993-9_26
    DOI: 10.1007/3-540-26993-2_26
    as

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