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Currency Mismatches in Emerging Market Economies: Is Winter Coming?

Author

Listed:
  • Hari Venkatesh

    (Indian Institute of Technology Kharagpur)

  • Gourishankar S Hiremath

    (Indian Institute of Technology Kharagpur)

Abstract

We develop a currency mismatch index and examine the causes of currency mismatches in emerging market economies. This study is based on a unique dataset on 22 economies from 2008 to 2017. We also construct the original sin index using granular data on international debt securities. We find Latin American countries, followed by Central European countries, suffer from the original sin and currency mismatch problems. The panel regression estimates show that country size, trade openness, and the level of economic and financial development explain cross-country variations in currency mismatches. Our empirical results suggest that unstable monetary and fiscal policies are the primary causes of currency mismatches. The results indicate that a better institutional environment reduces currency mismatches. These findings call for monetary independence, and macroprudential policy measures to minimize currency mismatches.

Suggested Citation

  • Hari Venkatesh & Gourishankar S Hiremath, 2020. "Currency Mismatches in Emerging Market Economies: Is Winter Coming?," Bulletin of Monetary Economics and Banking, Bank Indonesia, vol. 23(1), pages 25-54, April.
    • Handle: RePEc:idn:journl:v:23:y:2020:i:1b:p:25-54
    DOI: https://doi.org/10.21098/bemp.v23i1.1182
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    References listed on IDEAS

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    1. Ashis Kumar Pradhan & Gourishankar S Hiremath, 2020. "Do external commercial borrowings and financial development affect exports?," Cogent Business & Management, Taylor & Francis Journals, vol. 7(1), pages 1796269-179, January.
    2. repec:jaf:journl:v:13:y:2022:i:1:n:408 is not listed on IDEAS

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F30 - International Economics - - International Finance - - - General
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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