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

By Adolfo Barajas, Sergio Restrepo, Roberto Steiner, Juan Camilo Medellin, Cesar Pabon

November 22, 2017

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Adolfo Barajas, Sergio Restrepo, Roberto Steiner, Juan Camilo Medellin, and Cesar Pabon. Currency Mismatches and Vulnerability to Exchange Rate Shocks: Nonfinancial Firms in Colombia, (USA: International Monetary Fund, 2017) accessed November 21, 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

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.

Subject: Depreciation, Exchange rates, Exports, Financial regulation and supervision, Financial statements, Foreign exchange, Hedging, International trade, National accounts, Public financial management (PFM)

Keywords: Balance sheet effects, Balance sheet exposure, Colombia, Debt issuance, Depreciation, Exchange rate, Exchange rate derivatives, Exchange rates, Exports, FC assets, FC debt, Financial statements, Foreign currency, Global, Hedging, Trade credit, WP

Publication Details

Pages:

41
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2017/263
Stock No:

WPIEA2017263
ISBN:

9781484330128
ISSN:

1018-5941

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