IDEAS home Printed from https://ideas.repec.org/p/dar/wpaper/77472.html
   My bibliography  Save this paper

Hedging speculation, and investment in balance-sheet triggered currency crises

Author

Listed:
  • Röthig, Andreas
  • Semmler, Willi
  • Flaschel, Peter

Abstract

This paper explores the linkage between corporate risk management strategies, investment, and economic stability in an open economy with a flexible exchange rate regime. Firms use currency futures contracts to manage their exchange rate exposure – caused by balance sheet effects as in Krugman (2000) – and therefore their investments’ sensitivity to currency risk. We find that, depending on whether futures contracts are used for risk reduction (i.e., hedging) or risk taking (i.e., speculation), the implied magnitudes of recessions and booms are decreased or increased. Corporate risk management can therefore substantially affect economic stability on the macrolevel.

Suggested Citation

  • Röthig, Andreas & Semmler, Willi & Flaschel, Peter, 2008. "Hedging speculation, and investment in balance-sheet triggered currency crises," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 77472, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    • Handle: RePEc:dar:wpaper:77472
    Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/77472/
    as

    Download full text from publisher

    File URL: http://tuprints.ulb.tu-darmstadt.de/4765
    Download Restriction: no
    File URL: http://www.download.tu-darmstadt.de/wi/vwl/ddpie/ddpie_168.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:dar:wpaper:77472. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Dekanatssekretariat (email available below). General contact details of provider: https://edirc.repec.org/data/ivthdde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.