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Institut für Volkswirtschaftslehre, Technische Universität Darmstadt >
Darmstadt Discussion Papers in Economics, Inst. f. VWL, TU Darmstadt >
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http://hdl.handle.net/10419/32058
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| Title: | | Hedging, speculation, and investment in balance-sheet triggered currency crises  |
| Authors: | | Röthig, Andreas Semmler, Willi Flaschel, Peter |
| Issue Date: | | 2006 |
| Series/Report no.: | | Darmstadt discussion papers in economics 168 |
| Abstract: | | This paper explores the linkage between corporate risk management strategies, investment, and economic stability in an open economy with a flexible exchange rate regime. Firms use currency futures contracts to manage their exchange rate exposure caused by balance sheet effects as in Krugman (2000) and therefore their investments sensitivity to currency risk. We find that, depending on whether futures contracts are used for risk reduction (i.e., hedging) or risk taking (i.e., speculation), the implied magnitudes of recessions and booms are decreased or increased. Corporate risk management can therefore substantially affect economic stability on the macrolevel. |
| Subjects: | | Mundell-Fleming-Tobin model foreign-debt financed investment currency crises real crises currency futures hedging speculation |
| JEL: | | E32 E44 F31 F41 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Darmstadt Discussion Papers in Economics, Inst. f. VWL, TU Darmstadt
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