Corporate Foreign Currency Borrowing and Investment. The Case of Hungary
The paper investigates the impact of foreign currency lending in the Hungarian corporate sector on real investment. Using a rich micro dataset we consider two questions. First we test whether foreign currency (FX) lending – by lowering user cost and easing liquidity constraints – contributed to larger investment before the crisis. The second question focuses on balance sheet effects – whether the large domestic currency depreciation observed during the great recession resulted in lower investment rate for firms with foreign currency loans. We try to separate and measure both the competitiveness and balance sheet effect of depreciation. In order to answer these questions several methods are employed – OLS regression, regression enhanced with interaction-terms, and matching. The uniqueness of the paper lies in its almost full coverage in terms of firms and FX exposures, and the richness of the dataset. The results show that before the crisis FX lending increased investment rates. In addition, evidence is found on the liquidity easing channel being effective, i.e. the effect was larger in the case of smaller and non-traded firms. During the crisis the investment rate of firms with FX loans declined more because of balance sheet effects triggered by the depreciation. More liquidity constrained firms suffered more. On the other hand, the evidence on the competitiveness effect is weaker and less robust. Although one would expect that the effect of the exchange rate is non-linear and heterogeneous, the more general non-parametric approach (matching) yields estimates that do not statistically differ from the simple linear regression coefficients.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Marcio M. Janot & Márcio G. P. Garcia & Walter Novaes, 2008.
"Balance Sheet Effects in Currency Crises: Evidence from Brazil,"
Working Papers Series
162, Central Bank of Brazil, Research Department.
- Marcio M. Janot & Marcio G. P. Garcia & Walter Novaes, 2008. "Balance Sheet Effects in Currency Crises: Evidence from Brazil," Textos para discussão 556, Department of Economics PUC-Rio (Brazil).
- Gábor Kátay & Zoltán Wolf, 2008. "Driving Factors of Growth in Hungary - a Decomposition Exercise," MNB Working Papers 2008/6, Magyar Nemzeti Bank (Central Bank of Hungary).
- Sebastian Galiani & Eduardo Levy Yeyati & Ernesto Schargrodsky, 2003.
"Financial Dollarization and Debt Deflation under a Currency Board,"
64, Universidad de San Andres, Departamento de Economia, revised Nov 2003.
- Galiani, Sebastian & Levy Yeyati, Eduardo & Schargrodsky, Ernesto, 2003. "Financial dollarization and debt deflation under a currency board," Emerging Markets Review, Elsevier, vol. 4(4), pages 340-367, December.
- Eduardo Levy Yeyati & Ernesto Schargrodsky & Sebastián Galiani, 2003. "Finantial Dollarization and Debt Deflation under a Currency Board," Business School Working Papers tres, Universidad Torcuato Di Tella.
- Paul Krugman, 1999. "Balance Sheets, the Transfer Problem, and Financial Crises," International Tax and Public Finance, Springer, vol. 6(4), pages 459-472, November.
- Gaston Gelos, R., 2003. "Foreign currency debt in emerging markets: firm-level evidence from Mexico," Economics Letters, Elsevier, vol. 78(3), pages 323-327, March.
- Miguel FUENTES, 2009.
"Dollarization Of Debt Contracts: Evidence From Chilean Firms,"
The Developing Economies,
Institute of Developing Economies, vol. 47(4), pages 458-487.
- Miguel Fuentes, 2007. "Dollarization of Debt Contracts: Evidence from Chilean Firms," Documentos de Trabajo 326, Instituto de Economia. Pontificia Universidad Católica de Chile..
- Ignacio Lobato & Sangeeta Pratap & Alejandro Somuano, 2004.
"Debt Composition and Balance Sheet Effects of Exchange Rate Volatility in Mexico: A Firm Level Analysis,"
0405, Centro de Investigacion Economica, ITAM.
- Pratap, Sangeeta & Lobato, Ignacio & Somuano, Alejandro, 2003. "Debt composition and balance sheet effects of exchange rate volatility in Mexico: a firm level analysis," Emerging Markets Review, Elsevier, vol. 4(4), pages 450-471, December.
- Martin Schneider & Aaron Tornell, 2004. "Balance Sheet Effects, Bailout Guarantees and Financial Crises," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 883-913.
- Sebnem Kalemli-Ozcan & Herman Kamil & Carolina Villegas-Sanchez, 2010.
"What Hinders Investment in the Aftermath of Financial Crises: Insolvent Firms or Illiquid Banks?,"
NBER Working Papers
16528, National Bureau of Economic Research, Inc.
- Kalemli-Ozcan, Sebnem & Kamil, Herman & Villegas-Sanchez, Carolina, 2011. "What Hinders Investment in the Aftermath of Financial Crises: Insolvent Firms or Illiquid Banks?," CEPR Discussion Papers 8543, C.E.P.R. Discussion Papers.
- Simon Gilchrist & Jae W. Sim, 2007. "Investment during the Korean Financial Crisis: A Structural Econometric Analysis," NBER Working Papers 13315, National Bureau of Economic Research, Inc.
- Mehtap Kesriyeli & Erdal Ozmen & Serkan Yigit, 2005.
"Corporate Sector Debt Composition and Exchange Rate Balance Sheet Effect in Turkey,"
0516, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
- Mehtap Kesriyeli & Erdal Ozmen & Serkan Yigit, 2005. "Corporate Sector Debt Composition and Exchange Rate Balance Sheet Effect in Turkey," ERC Working Papers 0507, ERC - Economic Research Center, Middle East Technical University, revised Nov 2005.
- Romain Ranciere & Aaron Tornell & Athanasios Vamvakidis, 2010. "Currency mismatch, systemic risk and growth in emerging Europe," Economic Policy, CEPR;CES;MSH, vol. 25, pages 597-658, October.
- Kandilov, Ivan T. & Leblebicioglu, AslI, 2011. "The impact of exchange rate volatility on plant-level investment: Evidence from Colombia," Journal of Development Economics, Elsevier, vol. 94(2), pages 220-230, March.
- Mariann Endrész & Gyõzõ Gyöngyösi & Péter Harasztosi, 2012. "Currency mismatch and the sub-prime crisis: firm-level stylised facts from Hungary," MNB Working Papers 2012/8, Magyar Nemzeti Bank (Central Bank of Hungary).
- 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.
When requesting a correction, please mention this item's handle: RePEc:mnb:wpaper:2014/1. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lorant Kaszab)
If references are entirely missing, you can add them using this form.