We provide a comprehensive account of the evolution of the currency composition of sovereign and corporate external borrowing by emerging markets over the past fifteen years. We show that a higher reliance on foreign currency debt by the corporate sector is associated with higher sovereign default risk. We introduce local currency sovereign debt and private sector currency mismatch into a standard sovereign debt model to examine how the currency composition of corporate borrowing affects the sovereign's incentive to inflate or default. A calibration of the model generates the empirical patterns of sovereign credit risk over the last decade.
Du, Wenxin, and Jesse Schreger. "Sovereign Risk, Currency Risk, and Corporate Balance Sheets." Columbia Business School, June 2021.
Each author name for a Columbia Business School faculty member is linked to a faculty research page, which lists additional publications by that faculty member.
Each topic is linked to an index of publications on that topic.