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Corporate currency hedging and currency crises

Röthig, Andreas and Semmler, Willi and Flaschel, Peter (2005):
Corporate currency hedging and currency crises.
Darmstadt, In: Darmstadt Discussion Papers in Economics, [Online-Edition: http://econstor.eu/bitstream/10419/22530/1/ddpie_147.pdf],
[Report]

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.

Item Type: Report
Erschienen: 2005
Creators: Röthig, Andreas and Semmler, Willi and Flaschel, Peter
Title: Corporate currency hedging and currency crises
Language: English
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.

Series Name: Darmstadt Discussion Papers in Economics
Volume: 147
Place of Publication: Darmstadt
Uncontrolled Keywords: Mundell-Fleming-Tobin model, currency crises, currency hedging, hedging costs
Divisions: 01 Department of Law and Economics
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete > Fachgebiet Makroökonomie und Finanzmärkte
Date Deposited: 20 Nov 2008 08:24
Official URL: http://econstor.eu/bitstream/10419/22530/1/ddpie_147.pdf
Additional Information:

JEL Classi¯cation: E32, E44, F31, F41

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