Currency Mismatches and Vulnerability to Exchange Rate Shocks: Nonfinancial Firms in Colombia

Author/Editor:

Adolfo Barajas ; Sergio Restrepo ; Roberto Steiner ; Juan Camilo Medellin ; Cesar Pabon

Publication Date:

November 22, 2017

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

After building up foreign currency denominated (FC) liabilities over several years, Colombian firms might be vulnerable to a shift in external conditions. We undertake three empirical exercises to better understand these vulnerabilities. First, we identify the determinants of FC borrowing. Second, we investigate the implications for real activity, finding a balance sheet effect that transmits exchange rate fluctuations to investment and is asymmetric, much stronger for depreciations than for appreciations. Finally, we find that foreign exchange derivatives are not used solely for hedging, due in part to monetary authority intervention to smooth exchange rate volatility. However, a full explanation remains open for future research.

Series:

Working Paper No. 17/263

Subject:

English

Publication Date:

November 22, 2017

ISBN/ISSN:

9781484330128/1018-5941

Stock No:

WPIEA2017263

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

41

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