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Hedging speculation, and investment in balance-sheet triggered currency crises

Röthig, Andreas ; Semmler, Willi ; Flaschel, Peter (2008)
Hedging speculation, and investment in balance-sheet triggered currency crises.
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Item Type: Report
Type of entry: Primary publication
Title: Hedging speculation, and investment in balance-sheet triggered currency crises
Language: English
Date: 20 November 2008
Place of Publication: Darmstadt
Series: Darmstadt Discussion Papers in Economics
Series Volume: 168
Corresponding Links:
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.

Uncontrolled Keywords: Mundell-Fleming-Tobin model, foreign-debt financed investment, currency crises, real crises, currency futures, hedging, speculation
URN: urn:nbn:de:tuda-tuprints-47659
Additional Information:

JEL Classification: E32, E44, F31, F41; Erstellt März 2006

Classification DDC: 300 Social sciences > 330 Economics
Divisions: 01 Department of Law and Economics
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete > Fachgebiet Makroökonomie und Finanzmärkte
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete
Date Deposited: 20 Nov 2008 08:22
Last Modified: 25 Oct 2023 09:34
URI: https://tuprints.ulb.tu-darmstadt.de/id/eprint/4765
PPN: 378321579
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