CFCM Seminar: Kenza Benhima (University of Lausanne)

Foreign currency borrowing and expectations (with Isabella Blangini and Ouarda Merrouche)

Abstract: The paper explores the hypothesis that the dollarization of liabilities in emerging market economies results from the different expectations that domestic firms and international investors may have on the stability of the exchange rate. We show that a certain degree of debt dollarization might be observed, if the fundamentals are relatively strong and domestic agents have an informational advantage on the state of the economy. We provide empirical evidence of this phenomenon. Transparency in international markets and policy implications of our findings are discussed.