Dollarization of Debt Contracts: Evidence from Chilean Firms.

Abstract

This paper uses a new data set to estimate the causes and consequences of foreign currency debt in rms' balance sheet. The vidence from this sample of Chilean firms indicates that dollar-denominated debt is more used by larger firms and those more exposed to foreign competition. We find evidence that dollar denominated debt combines with exchange rate movements to produce a negative balance-sheet effect that reduces firm's investment in periods of strong exchange rate depreciation. This negative balance-sheet effect is associated with long term debt and appears to be non-linear in the amount of real exchange rate depreciation.Balance sheet effects, currency mismatches, dollarization, macroeconomics of developing countries