Exchange Rate Exposure and Firm Dynamics

Juliana Salomao, Liliana Varela

Research output: Contribution to journalArticlepeer-review

10 Scopus citations


This article develops a heterogeneous firm-dynamics model to jointly study firms' currency debt composition and investment choices. In our model, foreign currency borrowing arises from a dynamic trade-off between exposure to currency risk and growth. The model endogenously generates selection of productive firms into foreign currency borrowing. Among them, firms with high marginal product of capital use foreign loans more intensively. We assess econometrically the model's predicted pattern of foreign currency borrowing using firm-level census data from the deregulation of these loans in Hungary, calibrate the model, and quantify the aggregate impact of this financing. Our counterfactual exercises show that understanding the characteristics of firms borrowing in foreign currency is critical to assess the aggregate consequences of this financing.

Original languageEnglish (US)
Pages (from-to)481-514
Number of pages34
JournalReview of Economic Studies
Issue number1
StatePublished - Jan 1 2022

Bibliographical note

Publisher Copyright:
© 2021 The Author(s). Published by Oxford University Press on behalf of The Review of Economic Studies Limited.


  • Currency mismatch
  • Firm dynamics
  • Foreign currency debt
  • Uncovered interest rate parity


Dive into the research topics of 'Exchange Rate Exposure and Firm Dynamics'. Together they form a unique fingerprint.

Cite this