CURRENCY MISMATCHES IN EMERGING MARKET ECONOMIES: IS WINTER COMING?

  • Hari Venkatesh Indian Institute of Technology Kharagpur, West Bengal
  • Gourishankar S Hiremath Indian Institute of Technology Kharagpur, West Bengal
Keywords: Foreign currency debt, Currency mismatch, Macroprudential policies, Monetary independence

Abstract

We develop a currency mismatch index and examine the causes of currency mismatches in emerging market economies. This study is based on a unique dataset on 22 economies from 2008 to 2017. We also construct the original sin index using granular data on international debt securities. We find Latin American countries, followed by Central European countries, suffer from the original sin and currency mismatch problems. The panel regression estimates show that country size, trade openness, and the level of economic and financial development explain cross-country variations in currency mismatches. Our empirical results suggest that unstable monetary and fiscal policies are the primary causes of currency mismatches. The results indicate that a better institutional environment reduces currency mismatches. These findings call for monetary independence, stable fiscal policy, and macroprudential policy measures tominimize currency mismatches.

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Published
2020-02-29
How to Cite
Venkatesh, H., & Hiremath, G. (2020). CURRENCY MISMATCHES IN EMERGING MARKET ECONOMIES: IS WINTER COMING?. Buletin Ekonomi Moneter Dan Perbankan, 23(1), 25 - 54. https://doi.org/10.21098/bemp.v23i1.1182
Section
Articles