Currency Mismatches and Vulnerability to Exchange Rate Shocks: Nonfinancial Firms in Colombia

Barajas, Adolfo; Restrepo, Sergio; Steiner, Roberto; Medellín, Juan C.; Pabón, César

doi:10.5089/9781484330128.001

Cited by 3 publications

(3 citation statements)

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“…4 See Galindo et al (2003) for a survey. See Barajas et al (2017), Restrepo et al (2014) and Echeverry et al (2003) for the case of Colombia. 5 For the theoretical dimension see for example Céspedes et al (2004), Krugman (1999) or Devereux et al (2006 we study imports and exports jointly.…”

Section: Recent Work Questions the Conventional Wisdom Of Both Producmentioning

confidence: 99%

“…Using data on assets and derivatives for a set of Colombian firms,Barajas et al (2017) show that Colombian firms in general do not hold assets in foreign currencies, and for those who do the value of assets is relatively small with respect to their foreign currency liabilities Restrepo et al (2014). show that currency mismatches have increased over time as firms do not adjust the composition of their assets or revenue to match the increase of liabilities in foreign currency, and firms that are not naturally hedged do not use derivatives to hedge financially Hau et al (2019).…”

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confidence: 99%

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The Dominant Currency Financing Channel of External Adjustment

Casas¹,

Meleshchuk²,

Timmer³

2020

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We provide evidence on a new transmission channel of exchange rate movements to net exports. Using a novel identification strategy by exploiting firms' foreign currency debt and debt maturity structure in Colombia, we analyze the trade response of firms that are financially more exposed to a depreciation through a debt revaluation channel. We show that while exports are unaffected by the debt revaluation, imports contract more sharply for firms with larger financial exposure to the depreciation. However, the import response is exclusively driven by firms that import but do not export. The results can be rationalized by a model where exporters are shielded from debt revaluation as they have revenues in foreign currency. We conclude that dominant currency financing strengthens the expansionary impact of a depreciation on the trade balance.

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Section: Recent Work Questions the Conventional Wisdom Of Both Producmentioning

confidence: 99%

mentioning

confidence: 99%

The Dominant Currency Financing Channel of External Adjustment

Casas¹,

Meleshchuk²,

Timmer³

2020

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“…Along the same lines, Geczy, Minton, and Schrand (1997), Céspedes, Chang, and Velasco (2000), Allayanis and Ofeck (2001), and Cowan et al (2005) conclude that when companies' liabilities are dollarized, a real depreciation has a detrimental effect on equity and results in a contraction of investment. In the case of Colombia, Restrepo, Niño, and Montes (2014) as well as Barajas et al (2017) found that a depreciation of the real exchange rate is associated with a reduction in the rate of investment in fixed assets of those companies that have more than half of their liabilities in foreign currency.…”

Section: Introductionmentioning

confidence: 99%

Financial Stability Report - First Half of 2022

2023

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Banco de la República’s main objective is to preserve the purchasing power of the currency in coordination with the general economic policy that is intended to stabilize output and employment at long-term sustainable levels. Properly meeting the goal assigned to the Bank by the 1991 Constitution critically depends on preserving financial stability. This is understood to be a general condition in which the financial system evaluates and manages the financial risks in a way that facilitates the economy’s performance and efficient allocation of resources while, at the same time, it is able to, on its own, absorb, dissipate, and mitigate the appearance of risks that may arise as a result of adverse events. This Financial Stability Report provides Banco de la República’s diagnosis of the financial system’s and the recent performance of its debtors as well as of the main risks and vulnerabilities that could affect the stability of the Colombian economy. That is why the financial market participants and the public are being informed, and public debate on trends and risks affecting the system is being encouraged. The results presented here also serve the monetary authority as a basis for making decisions that will enhance financial stability in the general context of its objectives. This edition marks the twentieth anniversary of the Financial Stability Report, which was first published in July 2002. Over these past twenty years, the credit and macroprudential policy framework in Colombia has been continuously reinforced while financial regulation and supervision have closely followed international standards. As a result the Colombian financial system has expanded its services to the economy and has weathered diverse economic circumstances while remaining sound and stable, since 2002. Over the course of time, the Financial Stability Report has been and continues to be permanently updated by Banco de la República in order to improve its usefulness to the general public. The analysis presented in this Report allows us to conclude that the recovery of lending activity in Colombia has been consolidated in recent months. Credit (in all its categories) has picked up and the decline in past-due and risky loans continues. The capital adequacy and liquidity indicators of credit institutions are comfortably above the regulatory minimums. The performance of credit institutions and nonbanking financial institutions, in a context of increased market volatility, reflects the soundness and stability of the Colombian financial system. At the same time, the combination of various global events and the recent trend in lending poses some vulnerabilities for the stability of the financial system. First, as mentioned in the previous edition of the Report, the exposure of the Colombian economy and financial institutions to sudden changes in global financial conditions has persisted in recent months in an environment of high uncertainty. Second, recent months have seen a rapid expansion of loans to households in Colombia in both the housing category and, especially, the consumer category. The trend in credit growth could eventually cause fragilities given that the ratio of household indebtedness to disposable income is around its historical maximum. In any case, the results presented in this Report indicate that the financial system has shown itself to be sufficiently resilient to adverse scenarios on both vulnerability fronts. In compliance with its constitutional objectives and in coordination with the financial system’s security network, Banco de la República will continue to closely monitor the outlook for financial stability at this juncture and will make the decisions that are necessary to ensure the proper functioning of the economy, facilitate the flow of sufficient credit and liquidity resources, and further the smooth functioning of the payment system. Leonardo Villar Gómez, Governor

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Probabilidad de ganancias cambiarias, inversión de largo plazo y deuda en moneda extranjera, antes y durante el brote de Covid-19: un análisis de empresas mexicanas

Castro

Herrera

2021

CyA

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<p>Este artículo muestra el análisis de los impactos de las inversiones en activos de largo plazo, deuda en moneda extranjera y de la paridad peso-dólar en la probabilidad de obtener ganancias cambiarias durante el periodo de Covid-19, en comparación con el periodo previo (1990-2019). Mediante especificaciones logit, se encuentra que antes de la pandemia los activos intangibles, la inversión en activos fijos durante los doce meses recientes, la paridad peso-dólar y la deuda en dólares reducen la probabilidad de obtener ganancias cambiarias; únicamente las inversiones en inmuebles, planta y equipo tiene un efecto positivo en la probabilidad de obtener ganancias cambiarias en el caso de una depreciación monetaria. Durante el periodo asociado con la contingencia, únicamente fueron significativas las inversiones recientes en activos fijos, manteniendo la relación inversa observada en el periodo previo<strong>. </strong></p>

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Currency Mismatches and Vulnerability to Exchange Rate Shocks: Nonfinancial Firms in Colombia

Cited by 3 publications

References 10 publications

The Dominant Currency Financing Channel of External Adjustment

The Dominant Currency Financing Channel of External Adjustment

Financial Stability Report - First Half of 2022

Probabilidad de ganancias cambiarias, inversión de largo plazo y deuda en moneda extranjera, antes y durante el brote de Covid-19: un análisis de empresas mexicanas

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