IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Corporate Foreign Currency Borrowing and Investment. The Case of Hungary

  • Marianna Endrész

    ()

    (Magyar Nemzeti Bank (the central bank of Hungary))

  • Péter Harasztosi

    ()

    (Magyar Nemzeti Bank (the central bank 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.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://english.mnb.hu/Root/Dokumentumtar/ENMNB/Kiadvanyok/mnben_mnbfuzetek/WP_2014-1_final.pdf
Download Restriction: no

Paper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2014/1.

as
in new window

Length: 34 pages
Date of creation: 2014
Date of revision:
Handle: RePEc:mnb:wpaper:2014/1
Contact details of provider: Web page: http://www.mnb.hu/

More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Miguel Fuentes, 2007. "Dollarization of Debt Contracts: Evidence from Chilean Firms," Documentos de Trabajo 326, Instituto de Economia. Pontificia Universidad Católica de Chile..
  2. Martin Schneider & Aaron Tornell, 2004. "Balance Sheet Effects, Bailout Guarantees and Financial Crises," Review of Economic Studies, Wiley Blackwell, vol. 71, pages 883-913, 07.
  3. 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.
  4. 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 (the central bank of Hungary).
  5. 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).
  6. 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.
  7. Gábor Kátay & Zoltán Wolf, 2008. "Driving Factors of Growth in Hungary - a Decomposition Exercise," MNB Working Papers 2008/6, Magyar Nemzeti Bank (the central bank of Hungary).
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
  13. Paul Krugman, 1999. "Balance Sheets, the Transfer Problem, and Financial Crises," International Tax and Public Finance, Springer, vol. 6(4), pages 459-472, November.
  14. 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.
  15. 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.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

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: (Maja Bajcsy)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.