Suchergebnisse

I explore an empirically robust but previously undocumented association between the foreign exchange reserves accumulated by central banks of emerging market economies and dollar-denominated debt held in the balance sheets of non financial sector firms. Borrowing in dollars can have damaging effects on corporate balance sheets in the event of exchange rate depreciation. However, firms may discount such risk because of the implicit insurance provided by the central banks ex-ante reserve accumulation: in the event of a currency depreciation, firms may expect the central bank to stabilize the exchange rate using its stock of reserves. Using a novel firm-level balance sheet database, I investigate this possibility for close to 1500 firms in six of the largest Latin American economies, Argentina, Brazil, Chile, Colombia, Mexico and Peru. Results suggest that over the sample period, 1995-2007, an increase in the level of reserves is statistically and economically associated with an increase in the dollar borrowing of non financial sector firms of these economies. This could hint at a possible paradox: a higher level of reserves need not necessarily signify an economy that is more resilient to shocks. While reserve accumulation enables governments to weather macroeconomic risks arising from sudden stops in international capital flows, it can also increase the vulnerability of the corporate sector to currency risks by distorting incentives. Thus central banks, while formulating their foreign exchange intervention policies, may need to take into consideration the impact of the resultant reserve stockpiling on the private sector.

DEBATE ON MACROECONOMIC POLICY IN THE UNITED STATES IN THE 1980S HAS LARGELY FOCUSED ON THE TWIN DEFICITS, THE FEDERAL BUDGET DEFICIT AND THE TRADE DEFICIT. SEVERAL OBSERVERS HAVE ARGUED THAT THE FEDERAL BUDGET DEFICIT IS THE PRIMARY CAUSE OF THE U.S. TRADE DEFICIT. YET OTHERS ADVOCATE PROTECTIONIST MEASURES TO DEAL WITH THE LARGE U.S. MERCHANDISE TRADE DEFICIT.

On Zoom, presentation by Joshua Aizenman of paper coauthored with Bada Han, Rashad Ahmed, and Yothin Jinjarak. Séminaire Cournot – Joshua Aizenman (U. Southern California) – Beta (beta-economics.fr) (Thursday, 6/14 – 2pm French time, 8am ET if my math is correct) Paper is here.