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Title:Corporate Currency Hedging and Currency Crises PDF Logo
Authors:Röthig, Andreas
Semmler, Willi
Flaschel, Peter
Issue Date:2005
Series/Report no.:Darmstadt discussion papers in economics 147
Abstract:We examine the impact of corporate currency hedging on economic stability by introducing hedging activity in a Mundell-Fleming-Tobin framework for analyzing currency and financial crises. The ratio between hedged and unhedged firms is modelled depending on firm size as well as hedging costs. The results indicate that, with an increasing fraction of hedged firms in an economy, the magnitude of a crisis decreases and from a specific hedging level onwards currency crises are ruled out. In order to improve corporate risk management access to hedging instruments should be made possible and hedging costs should be reduced.
Subjects:Mundell-Fleming-Tobin model
currency crises
currency hedging
hedging costs
JEL:F31
E44
E32
F41
Document Type:Working Paper
Appears in Collections:Darmstadt Discussion Papers in Economics, Inst. f. VWL, TU Darmstadt

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