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

42 Pages Posted: 18 Jan 2018

See all articles by Adolfo Barajas

Adolfo Barajas

International Monetary Fund (IMF) - Western Hemisphere Department

Sergio Restrepo

University of North Carolina (UNC) at Chapel Hill

Roberto Steiner

Universidad de los Andes, Colombia - Department of Economics

Juan Medellín

Fedesarrollo

Cesar Pabon

Fedesarrollo

Date Written: November 2017

Abstract

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.

Keywords: Foreign exchange, Western Hemisphere, Colombia, Colombia; depreciation; balance sheet effects; exchange rate derivatives;, depreciation, balance sheet effects, exchange rate derivatives

JEL Classification: E22, F31

Suggested Citation

Barajas, Adolfo and Restrepo, Sergio and Steiner, Roberto and Medellín, Juan and Pabon, Cesar, Currency Mismatches and Vulnerability to Exchange Rate Shocks: Nonfinancial Firms in Colombia (November 2017). IMF Working Paper No. 17/263. Available at SSRN: https://ssrn.com/abstract=3104513

Adolfo Barajas (Contact Author)

International Monetary Fund (IMF) - Western Hemisphere Department ( email )

700 19th Street NW
Washington, DC 20431
United States
202-623-4152 (Phone)
202-623-6070 (Fax)

Sergio Restrepo

University of North Carolina (UNC) at Chapel Hill ( email )

102 Ridge Road
Chapel Hill, NC NC 27514
United States

Roberto Steiner

Universidad de los Andes, Colombia - Department of Economics ( email )

Carrera 1a No. 18A-10
Santafe de Bogota, AA4976
Colombia
+571 341 2240 (Phone)
+571 281 5771 (Fax)

Juan Medellín

Fedesarrollo

Calle 78 No 9-91
Santafe de Bogota, 75074
Colombia

Cesar Pabon

Fedesarrollo

Calle 78 No 9-91
Santafe de Bogota, 75074
Colombia

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