Balance Sheet Effects in Currency Crises: Evidence from Brazil
Abstract"Third-generation currency crises models" argue that capital losses from exchange-rate depreciation propagate the crises to the productive sector. To test these models, we use a firm-level dataset that allows us to measure currency mismatches around the 2002 Brazilian currency crisis. We find that, between 2001 and 2003, firms that shortly before the crisis had large currency mismatches decreased their investment rates by 8.1 percentual points, relatively to other public firms. Moreover, we show that the currency depreciation implied large competitive gains for the exporters, and yet the investment of exporters with large currency mismatches fell by 12.5 percentual points, relatively to other exporters. The estimated falls in investment are economically very relevant, thereby corroborating the relevance of third generation models negative balance sheet effects.
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Bibliographic InfoPaper provided by Central Bank of Brazil, Research Department in its series Working Papers Series with number 162.
Date of creation: Apr 2008
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Web page: http://www.bcb.gov.br/?english
Other versions of this item:
- Marcio M. Janot & Marcio G. P. Garcia & Walter Novaes, 2008. "Balance Sheet Effects in Currency Crises: Evidence from Brazil," Textos para discussÃ£o 556, Department of Economics PUC-Rio (Brazil).
- NEP-ALL-2008-04-15 (All new papers)
- NEP-CBA-2008-04-15 (Central Banking)
- NEP-DEV-2008-04-15 (Development)
- NEP-IFN-2008-04-15 (International Finance)
- NEP-MON-2008-04-15 (Monetary Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kevin Cowan & Erwin Hansen & Luis Oscar Herrera, 2005.
"Currency Mismatches, Balance-Sheet Effects and Hedging in Chilean Non-Financial Corporations,"
Research Department Publications
4387, Inter-American Development Bank, Research Department.
- Kevin Cowan & Erwin Hansen & Luis Oscar Herrera, 2005. "Currency Mismatches, Balance Sheet Effects and Hedging in Chilean non-Financial Corporations," Working Papers Central Bank of Chile 346, Central Bank of Chile.
- Mariann Endrész & Gyõzõ Gyöngyösi & Péter Harasztosi, 2012. "Currency mismatch and the sub-prime crisis: firm-level stylised facts from Hungary," MNB Working Papers 2012/8, Magyar Nemzeti Bank (the central bank of Hungary).
- Marianna Endrész & Péter Harasztosi, 2014. "Corporate Foreign Currency Borrowing and Investment. The Case of Hungary," MNB Working Papers 2014/1, Magyar Nemzeti Bank (the central bank of Hungary).
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