Financial Development, Exchange Rate Fluctuations and Debt Dollarization: A Firm-Level Evidence

August 2, 2019

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Format: Chicago

Minsuk Kim. Financial Development, Exchange Rate Fluctuations and Debt Dollarization: A Firm-Level Evidence, (USA: International Monetary Fund, 2019) accessed September 18, 2024

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

This paper examines how financial development influences the debt dollarization of nonfinancial firms in a sample of emerging market economies (EMEs). The macroeconomic channels are identified from an optimal portfolio allocation model and assessed empirically using the accounting information of nonfinancial firms from 21 EMEs during 2009–2017. The results show that financial development, measured by the private credit-to-GDP ratio, mainly reduces the influence of exchange rate volatility in determining a firm's debt currency composition, among other channels. Furthermore, the effect of exchange rate volatility becomes statistically insignificant beyond an estimated threshold credit-to-GDP ratio of 100 percent.

Subject: Currencies, Depreciation, Exchange rate risk, Exchange rates, Financial markets, Financial regulation and supervision, Financial sector development, Foreign exchange, Money, National accounts

Keywords: Asia and Pacific, Balance sheet currency exposure, Central and Eastern Europe, Central Asia, Currencies, Debt ratio, Depreciation, Dollar debt ratio, Dollarization, East Asia, Exchange rate risk, Exchange rate volatility, Exchange rates, Explanatory variable, Financial Development, Financial sector development, Foreign currency, Global, Nonfinancial firm, Original Sin, Sample firm, WP

Publication Details

Pages:

42
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2019/168
Stock No:

WPIEA2019168
ISBN:

9781513508979
ISSN:

1018-5941

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