Currency Crisis, Monetary Policy, and Corporate Balance Sheet Vulnerabilities

Abstract

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New Strategies for Emerging Domestic Sovereign Bond Markets in the Global Financial Landscape

“…The following model was used by Eijffinger and Goderis (2005) to study the empirical impact of monetary policy on the exchange rate:…”

“…Eijffinger and Goderis (2005) focused on debt levels, whereby they have estimated the marginal impact of monetary policy for different levels of corporate debt. They concluded that the impact of monetary policy depends on the ratio short-term corporate debt to assets.…”

“…However, when debt levels are taken into account, a clearer picture emerges. Eijffinger and Goderis (2005) show that the impact of monetary policy on the exchange rate is non-linear and non-monotonic. They find that for relatively low corporate debt levels (i.e., for short-term debt to assets ratios between 0 and 11.7) higher interest rates lead to an appreciation of the exchange rate, while for higher debt levels (i.e., for short-term debt to assets ratios higher than 11.7) a tighter monetary policy results in a weakening of the exchange rate (see Annex B).…”

New Strategies for Emerging Domestic Sovereign Bond Markets

“…However, when debt levels are taken into account, a clearer picture emerges. Eijffinger and Goderis (2005) show that the impact of monetary policy on the exchange rate is non-linear and non-monotonic. They find that for relatively low corporate debt levels (i.e.…”