CURRENCY MISMATCHES IN EMERGING MARKET ECONOMIES: IS WINTER COMING?

Authors

Hari Venkatesh, Indian Institute of Technology Kharagpur, IndiaFollow
Gourishankar S Hiremath, Indian Institute of Technology Kharagpur, IndiaFollow

Document Type

Article

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.

Recommended Citation

Venkatesh, Hari and Hiremath, Gourishankar S (2020) "CURRENCY MISMATCHES IN EMERGING MARKET ECONOMIES: IS WINTER COMING?," Bulletin of Monetary Economics and Banking: Vol. 23: No. 1, Article 4.
DOI: https://doi.org/10.21098/bemp.v23i1.1182
Available at: https://bulletin.bmeb-bi.org/bmeb/vol23/iss1/4

First Page

25

Last Page

54

Creative Commons License

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

Country

India

Affiliation

Indian Institute of Technology Kharagpur