Debt Composition and Balance Sheet Effects of Exchange Rate Volatility in Mexico: A Firm Level Analysis
AbstractWe use Mexican firm-level data to study the role of currency mismatches in exacerbating the negative effects of a devaluation in the corporate sector and to investigate what drives Mexican firms to borrow in foreign currency. Our results show that large firms and exporters tend to borrow more heavily in foreign currency. The presence of foreign currency denominated debt poses a significant risk to balance sheets at the time of devaluation. Our findings suggest that in Mexico, the balance sheet effects of a devaluation far outweigh the competitiveness effects.
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Bibliographic InfoPaper provided by Centro de Investigacion Economica, ITAM in its series Working Papers with number 0405.
Length: 31 pages
Date of creation: Mar 2004
Date of revision:
Other versions of this item:
- Pratap, Sangeeta & Lobato, Ignacio & Somuano, Alejandro, 2003. "Debt composition and balance sheet effects of exchange rate volatility in Mexico: a firm level analysis," Emerging Markets Review, Elsevier, vol. 4(4), pages 450-471, December.
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