Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/210887
Authors: 
Gardberg, Malin
Year of Publication: 
2018
Series/Report no.: 
IFN Working Paper No. 1246
Abstract: 
Many currencies, especially those of countries with negative net foreign assets, tend to depreciate during times of financial turbulence. Using a panel of 26 currencies over the period 1/1997 - 6/2016, I show that the composition of net foreign assets matter for the exchange rate sensitivity to changes in global financial market risk tolerance, where debt financing increases it and equity financing reduces it. Thus, currencies of countries with large negative net external portfolio debt are more vulnerable to changes in financial market uncertainty than currencies with the equivalent net external equity. Ownership matters too, private net foreign debt liabilities heighten the exchange rate sensitivity much more than public. The relationship between banking sector risk intolerance, net external asset positions and exchange rates has, moreover, become stronger since the credit crisis.
Subjects: 
Exchange rates
Excess currency returns
Net foreign assets
External imbalances
Net foreign portfolio debt
Financial market risk tolerance
Panel data
JEL: 
F31
F32
G15
G20
C23
Document Type: 
Working Paper

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