Corporate currency hedging and currency crises
AbstractWe examine the impact of corporate currency hedging on economic stability by introducing hedging activity in a Mundell-Fleming-Tobin framework for analyzing currency and financial crises. The ratio between hedged and unhedged firms is modelled depending on firm size as well as hedging costs. The results indicate that, with an increasing fraction of hedged firms in an economy, the magnitude of a crisis decreases and from a specific hedging level onwards currency crises are ruled out. In order to improve corporate risk management access to hedging instruments should be made possible and hedging costs should be reduced.
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Bibliographic InfoPaper provided by Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute of Economics (VWL) in its series Darmstadt Discussion Papers in Economics with number 27194.
Date of creation: Apr 2005
Date of revision:
Publication status: Published in Darmstadt Discussion Papers in Economics . 147 (2005-04)
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Mundell-Fleming-Tobin model; currency crises; currency hedging; hedging costs;
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