Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/22530 
Year of Publication: 
2005
Series/Report no.: 
Darmstadt Discussion Papers in Economics No. 147
Publisher: 
Technische Universität Darmstadt, Department of Law and Economics, Darmstadt
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

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