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Hedging and Financial Fragilities in Fixed Exchange Rate Regimes

Author

Listed:
  • Burnside, C.
  • Eichenbaum, M.
  • Rebelo, S.

Abstract

Currency crises that coincide with banking crises tend to share four elements. First, governments provide guarantees to domestic and foreign bank creditors. Second, banks do not hedge their exchange rate risk. Third, there is a lending boom before the crises. Finally, when the currency/banking collapse occurs interest rates rise and there is a persistent decline in output. This paper proposes an explanation for these regularities.

Suggested Citation

  • Burnside, C. & Eichenbaum, M. & Rebelo, S., 1999. "Hedging and Financial Fragilities in Fixed Exchange Rate Regimes," RCER Working Papers 461, University of Rochester - Center for Economic Research (RCER).
    • Handle: RePEc:roc:rocher:461
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    File URL: http://rcer.econ.rochester.edu/RCERPAPERS/rcer_461.pdf
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    Citations

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    Cited by:

    1. Olivier Jeanne & Charles Wyplosz, 2003. "The International Lender of Last Resort. How Large Is Large Enough?," NBER Chapters, in: Managing Currency Crises in Emerging Markets, pages 89-124, National Bureau of Economic Research, Inc.
    2. Galindo, Arturo & Panizza, Ugo & Schiantarelli, Fabio, 2003. "Debt composition and balance sheet effects of currency depreciation: a summary of the micro evidence," Emerging Markets Review, Elsevier, vol. 4(4), pages 330-339, December.
    3. Willi Semmler, 2011. "Asset Prices, Booms and Recessions," Springer Books, Springer, number 978-3-642-20680-1, June.
    4. Hager HAMDANE BEN LETAIFA, 2011. "Déréglementation bancaire et stabilité financière dans les pays émergents," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 2(1), April.
    5. Husnu C. Dalgic, 2018. "Financial Dollarization in Emerging Markets: An Insurance Arrangement," CRC TR 224 Discussion Paper Series crctr224_051_2018, University of Bonn and University of Mannheim, Germany.
    6. Galindo, Arturo & Leiderman, Leonardo, 2005. "Living with Dollarization and the Route to Dedollarization," IDB Publications (Working Papers) 1553, Inter-American Development Bank.
    7. Dodd, Randall & Griffith-Jones, Stephany, 2007. "Brazil's derivatives markets: hedging, Central Bank intervention and regulation," Series Históricas 8868, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    8. Amartya Lahiri & Carlos A. Végh, 2002. "Living with the Fear of Floating: An Optimal Policy Perspective," NBER Chapters, in: Preventing Currency Crises in Emerging Markets, pages 663-704, National Bureau of Economic Research, Inc.
    9. Takalo, Tuomas & Castrén, Olli, 2000. "Capital market development, corporate governance and the credibility of exchange rate pegs," Working Paper Series 34, European Central Bank.
    10. Cheng, Gong, 2015. "Balance sheet effects, foreign reserves and public policies," Journal of International Money and Finance, Elsevier, vol. 59(C), pages 146-165.
    11. Mohamed Tahar RAJHI & Mohamed Sadok GASSOUMA, 2011. "Rapprochement entre capital reglementaire et capital economique dans les banques Tunisiennes dans le cadre du passage du Bâle I au Bâle II," Journal of Academic Finance, RED research unit, university of Gabes, Tunisia, vol. 2(1), April.
    12. Diego Nicolás Moccero, 2001. "Esquemas Cambiarios y Monetarios Alternativos en un Modelo de Interdependencia Macroeconómica entre Argentina y Brasil," Department of Economics, Working Papers 031, Departamento de Economía, Facultad de Ciencias Económicas, Universidad Nacional de La Plata.
    13. Fabio Filipozzi & Kersti Harkmann, 2010. "The Financial Crisis in Central and Eastern Europe: the Measures and Determinants of the Exchange Market Pressure Index and the Money Market Pressure Index," Research in Economics and Business: Central and Eastern Europe, Tallinn School of Economics and Business Administration, Tallinn University of Technology, vol. 2(2).
    14. Juan Carlos Echeverry & Leopoldo Fergusson & Roberto Steiner & Camila Aguilar, 2003. "Determinants And Consequences Of Foreign In Debtedness In Colombian Firms," Documentos CEDE 2333, Universidad de los Andes, Facultad de Economía, CEDE.
    15. Stephanos Papadamou & Trifon Tzivinikos, 2017. "The macroeconomic effects of fiscal consolidation policies in Greece," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 9(1), pages 34-49, April.

    More about this item

    Keywords

    BANKS ; EXCHANGE RATE ; FINANCIAL MARKET;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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