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Carry Trade and Currency Mix of Corporate Debt

Author

Listed:
  • Lorena Keller

    (Northwestern University)

  • Anna Cieslak

    (Duke University)

  • Manuel Adelino

    (Duke University)

Abstract

We exploit bank-by-firm data of the Peruvian economy to show that the mix of domestic and foreign currency debt of companies is strongly related to carry trade returns. This effect is driven by large corporations and is mostly absent for medium-sized firms. We document that the relationship is not driven by industry shocks or naturally hedged firms and is largely exogenous to the shocks specific to the Peruvian economy. We isolate the role of bank credit supply from firm credit demand and study the role of macro-prudential policies in mitigating corporate currency mismatches.

Suggested Citation

  • Lorena Keller & Anna Cieslak & Manuel Adelino, 2017. "Carry Trade and Currency Mix of Corporate Debt," 2017 Meeting Papers 1265, Society for Economic Dynamics.
    • Handle: RePEc:red:sed017:1265
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