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Corporate currency hedging and currency crises

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  • Röthig, Andreas
  • Semmler, Willi
  • Flaschel, Peter

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.

Suggested Citation

  • Röthig, Andreas & Semmler, Willi & Flaschel, Peter, 2005. "Corporate currency hedging and currency crises," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 27194, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    • Handle: RePEc:dar:wpaper:27194
    Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/27194/
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    Cited by:

    1. Christian Proa~no & Peter Flaschel & Willi Semmler, 2008. "Currency Crises and Monetary Policy in Economies with Partial Dollarization of Liabilities," The IUP Journal of Monetary Economics, IUP Publications, vol. 0(3), pages 14-39, August.
    2. Andreas Röthig, 2009. "Microeconomic Risk Management and Macroeconomic Stability," Lecture Notes in Economics and Mathematical Systems, Springer, number 978-3-642-01565-6, October.
    3. Wang, Peiwan & Zong, Lu, 2023. "Does machine learning help private sectors to alarm crises? Evidence from China’s currency market," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 611(C).
    4. Willi Semmler, 2011. "Asset Prices, Booms and Recessions," Springer Books, Springer, number 978-3-642-20680-1, December.

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    More about this item

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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