Exchange Rate Exposure and Firm Dynamics

Exchange Rate Exposure and Firm Dynamics

This paper develops a firm-dynamics model with heterogenous firms and endogenous currency debt composition to jointly study financing and investment decisions in developing economies. In our model, foreign currency borrowing arises from a trade-off between aggregate deviations from the risk-free uncovered interest rate parity and firms’ growth potential. Crucially, there is crosssectional heter...

Firm Strategy and Economic Exposure to Foreign Exchange Rate Movements

Exchange Rate Uncertainty and Firm Pro

1 Introduction

Emerging Market Exchange-Rate Exposure

We estimate the exposure of emerging-market companies to fluctuations in their domestic exchange rates. We use an instrumental-variable approach that identifies the total exposure of a company to exchange-rate movements, yet abstracts from the influence of confounding macroeconomic shocks. We find the impact of depreciations on emerging-market stock returns is overwhelmingly negative. Since we ...

Firm Liquidation and Economic Crisis under Unexpected Exchange Rate Shock

This paper studies the causes, mechanisms and consequences of decreasing firm value and welfare loss in an economy under a fixed exchange rate regime when there is an unexpected appreciation in domestic currency. We also study the possible economic crisis caused by the exchange rate shock. We consider the established production capacity as well as the training of firmspecific labors before prod...