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Dollarization Of Debt Contracts: Evidence From Chilean Firms

  • Miguel FUENTES

This paper uses a new data set to estimate the causes and consequences of foreign currency debt in rms' balance sheet. The vidence from this sample of Chilean firms indicates that dollar-denominated debt is more used by larger firms and those more exposed to foreign competition. We find evidence that dollar denominated debt combines with exchange rate movements to produce a negative balance-sheet effect that reduces firm's investment in periods of strong exchange rate depreciation. This negative balance-sheet effect is associated with long term debt and appears to be non-linear in the amount of real exchange rate depreciation.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1746-1049.2009.00094.x
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Article provided by Institute of Developing Economies in its journal The Developing Economies.

Volume (Year): 47 (2009)
Issue (Month): 4 ()
Pages: 458-487

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Handle: RePEc:bla:deveco:v:47:y:2009:i:4:p:458-487
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  1. Guillermo A. Calvo & Alejandro Izquierdo & Luis-Fernando Mejia, 2004. "On the Empirics of Sudden Stops: The Relevance of Balance-Sheet Effects," NBER Working Papers 10520, National Bureau of Economic Research, Inc.
  2. Benavente, Jose Miguel & Johnson, Christian A. & Morande, Felipe G., 2003. "Debt composition and balance sheet effects of exchange rate depreciations: a firm-level analysis for Chile," Emerging Markets Review, Elsevier, vol. 4(4), pages 397-416, December.
  3. Bronwyn H. Hall, Jacques Mairesse and Benoit Mulkay., 1998. "Firm Level Investment in France and the United States: An Exploration of What We Have Learned in Twenty Years," Economics Working Papers 98-261, University of California at Berkeley.
  4. Fukuda, Shin-ichi & Hoshi, Takeo & Ito, Takatoshi & Rose, Andrew, 2006. "International Finance," Journal of the Japanese and International Economies, Elsevier, vol. 20(4), pages 455-458, December.
  5. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1987. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  6. Hoyt Bleakley & Kevin Cowan, 2008. "Corporate Dollar Debt and Depreciations: Much Ado About Nothing?," The Review of Economics and Statistics, MIT Press, vol. 90(4), pages 612-626, November.
  7. Paul Cashin & Luis Felipe Céspedes & Ratna Sahay, 2003. "Commodity Currencies and the Real Exchange Rate," Working Papers Central Bank of Chile 236, Central Bank of Chile.
  8. Gianni De Nicoló & Patrick Honohan & Alain Ize, 2003. "Dollarization of the Banking System; Good or Bad?," IMF Working Papers 03/146, International Monetary Fund.
  9. Reinhart, Carmen & Calvo, Guillermo, 2002. "Fear of floating," MPRA Paper 14000, University Library of Munich, Germany.
  10. Juan Pablo Medina & Rodrigo Valdés, 1998. "Flujo de Caja y Decisiones de Inversión en Chile: Evidencia de Sociedades Anónimas Abiertas," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 35(106), pages 301-323.
  11. 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.
  12. Aguiar, Mark, 2005. "Investment, devaluation, and foreign currency exposure: The case of Mexico," Journal of Development Economics, Elsevier, vol. 78(1), pages 95-113, October.
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