دلاری کردن بدهی و کانال ترازنامه بانک

Emerging markets' financial institutions often face a mismatch in the currency denominations of their liabilities (foreign currency-denominated debt raised from foreign lenders) and their assets (domestic currency loans to domestic borrowers). We study the effect of this mismatch on monetary policy in a sticky-price, dynamic general-equilibrium small open economy model in which the country default-risk premium depends on domestic banks' balance sheets due to asymmetric information. A fixed exchange rate rule that stabilizes bank balance sheets offers greater stability than does an interest rate rule that targets inflation to offset the real effects of sticky-prices.

Emerging market economies often finance capital accumulation through international capital markets and, as a consequence, have large external debt positions denominated in foreign currency. In many countries, such as Korea and Thailand at the outset of the 1997–1998 Asian financial crisis, a large share of international capital flow was intermediated by domestically owned financial institutions. Of the approximately 76 billion dollars recorded as raised by Thai firms on international debt markets between 1992 and mid-1997 (according to the IFR Platinum database), about 3.2% was denominated in Thai baht. More than 41% of the hard currency debt was loaned to banks or other firms in the financial sector. Less than 1% of the approximately 144 billion dollars recorded as raised by Korean firms during the same period was denominated in Korean won, and more than 62% of the hard currency debt was lent to firms in the financial sector, including finance companies and merchant banks. As noted by Eichengreen and Hausmann (1999), the vast majority of lending to emerging markets is denominated in foreign currencies. Calvo (2002) refers to the denomination of external debt in foreign currency as ‘liability dollarization’. When banks borrow foreign currency to finance domestic currency loans, the resulting currency mismatch exposes their balance sheets to exchange rate fluctuations. In this paper, we examine some of the quantitative implications that such a mismatch may have for the conduct of monetary policy in emerging markets and for the dynamic propagation of macroeconomic shocks in an open economy. In particular, we examine a sticky-price, dynamic general-equilibrium (DGE) model of a small open economy in which capital flows are intermediated by banks whose cost of capital depends on the state of their balance sheets. An unexpected nominal exchange rate depreciation will negatively affect bank balance sheets, increase the country's default-risk premium and potentially offset the standard expansionary effects of depreciation. A key aspect of our model is that banks intermediate capital flows between a small open economy and global financial markets. The creditworthiness of a country's banks determines the default-risk premium (i.e. the deviation of domestic interest rates from the exchange rate-adjusted world interest rate). An exchange rate depreciation that causes deterioration in bank balance sheets will increase the default-risk premium. However, a rise in the default-risk premium will also induce a temporary depreciation under floating exchange rates. There is thus a powerful feedback loop between bank balance sheets, the default-risk premium, and a floating nominal exchange rate. In equilibrium, foreign currency debt exposure can generate high volatility in the nominal exchange rate and in the real economy. The focus of this paper is a comparison of the business cycle stabilization properties of a monetary policy that fixes the exchange rate with those of a floating exchange rate policy represented by an inflation-targeting interest rate rule. In a model calibrated to match aspects of some East Asian economies, we find that fixed exchange rates provide greater macroeconomic stability. Calvo and Reinhart (2000) show that currency devaluations lead to real contractions in emerging markets but not in developed economies. Among other factors, they attribute the real contractions to the deterioration of the balance sheets of firms with foreign currency debt. Krugman (2000) develops a stylized model in which a self-fulfilling devaluation leads to the deterioration of firms' balance sheets and a decline in investment. However, in equilibrium, the effect of devaluation on the balance sheets of firms with foreign currency debt depends on the responses of the value of both assets and liabilities. The real effects of a monetary policy-induced devaluation on balance sheets depends on the existence and nature of nominal rigidities faced by the economy, as pointed out by Calvo (2000). If firms have issued foreign currency debt to finance real assets, and, if all prices are flexible, changes in the money supply would not change the relative value of firms' assets and foreign currency liabilities. A number of authors (including Aghion et al., 2000, Aghion et al., 2001, Céspedes, 2000, Céspedes et al., 2000, Cook, 2000, Devereux and Lane, 2000, Faia and Monacelli, 2002 and Gertler et al., 2000) have modeled equilibrium economies in which firms borrow in foreign currency to finance the purchase of real assets with a variety of nominal rigidities. In each of these models, borrowers face a default-risk premium that is a function of the state of firms' balance sheets. The macroeconomic effects of devaluation seem dependent on the type of rigidity modeled. For example, Céspedes et al. (2000) incorporate sticky nominal wages. A monetary policy-induced devaluation reduces real wages when nominal wages are sticky. Relatively cheap labor increases the real value of domestic capital relative to foreign debt, improves the balance sheets of firms, reduces the cost of foreign borrowing, and increases investment. Thus, the balance sheet channel augments the ability of policymakers to use flexible exchange rates to stabilize the economy. In contrast, under sticky output prices as in Cook (2000), a devaluation leads to an increase in real wages, reduces the profits accruing to the owners of capital, reduces the real value of domestic capital relative to foreign currency debt, increases the cost of foreign borrowing, and reduces investment. Thus, the currency mismatch reduces the ability of policymakers to use flexible exchange rates to stabilize the economy. In this paper, we focus on the effects of exchange rate fluctuations on the balance sheets of banks with foreign currency debt. In particular, we look at banks, which intermediate capital flows from international financial markets to a small open economy. The precise nature of price stickiness is less important in a model in which foreign currency is borrowed to finance nominally fixed assets than in models in which foreign currency loans finance real assets. Bank balance sheets include loans whose payoffs are fixed in nominal terms. A devaluation automatically reduces the value of nominally fixed, domestic currency assets relative to foreign currency liabilities2. To model the impact of bank balance sheets on financial intermediation, we adapt the linear monitoring cost of asymmetric information models of Carlstrom and Fuerst, 1997 and Bernanke et al., 1999. In these models, an increase in the leverage of firms increases their real cost of borrowing. In a parallel manner in our model, a reduction in bank capitalization increases banks' borrowing costs. Since banks intermediate foreign borrowing, the state of bank balance sheets determines the external cost of capital for the small open economy. As banks typically have much greater leverage than nonfinancial corporations, banks' balance sheets may be especially vulnerable to market risk. Like many previous studies of liability dollarization, we follow the closed economy models of Fuerst (1995), Carlstrom and Fuerst (1997) and Bernanke et al. (1999) in incorporating the asymmetric information model of Townsend (1979) into a quantitative, dynamic general-equilibrium, open economy model. Additional antecedents of this work include Gale and Hellwig (1985) and Bernanke and Gertler (1990). Williamson (1987) and Bernanke and Gertler (1989) develop overlapping generation's models of business cycles. Greenwood and Williamson (1989) develop a two-country overlapping generation's model in which banks arise endogenously to provide specialized monitoring. Holmstrom and Tirole (1997) construct a model of bank liquidity based on a similar asymmetric information channel. Another modeling structure for imperfect financial markets focuses on the role of exogenous collateral constraints, following Kiyotaki and Moore (1997). Chen (2001) studies the impact of asset price declines in a closed economy when the domestic banking system faces such constraints. Calvo (1998) describes the financial crises that have affected emerging markets as the results of “sudden stops”: the sudden imposition of collateral constraints on international lending. Incorporating the literature on sudden stops into a fully specified quantitative business cycle model, Mendoza (2001) shows that, when foreign debt is denominated in traded goods, a real exchange rate depreciation can reduce the value of collateral and lead to sudden outflows of capital. Christiano et al. (2002) study the role of monetary policy when a sudden stop strikes a small open economy with limited participation in the domestic banking system. Devereux (2001) examines the effects of a depreciation on trade credit when banks that provide such credit have a currency mismatch between assets and liabilities. Arellano and Mendoza (2002) offer a summary of methods for introducing sudden stops into fully specified business cycle models. A body of previous work has explored the role of imperfect international financial intermediation in propagating business cycle shocks. Edwards and Végh (1997) specify a continuous-time cash-in-advance model in which a rise in expected inflation increases the costs of financial intermediation. Burnside et al. (2001) argue that implicit government guarantees to banks, reduce the incentive for banks to engage in currency hedging. They examine some of the real effects of the elimination of such guarantees during a currency crisis. Chang and Velasco (1999) argue that real depreciation systematically leads to more frequent or severe bank runs. Chinn and Kletzer (2000) and Schneider and Tornell (2000) examine small open economy models with imperfect capital markets in which bailout guarantees lead to endogenous boom-and-bust lending cycles. Oviedo (2003) models financial intermediation to a small open economy as a two-sided contract between financial intermediaries, domestic borrowers and foreign creditors. Our model of the small open economy features many elements drawn from quantitative, dynamic general-equilibrium international business models following Mendoza (1991) and Backus et al. (1992). Our model also incorporates sticky nominal prices following Obstfeld and Rogoff (1995). A large number of papers have examined the business cycle stabilization and welfare properties of simple monetary rules in dynamic, forward-looking models (see Woodford, 2001; Galı́ and Monacelli, 2002; and the papers in Taylor, 1999). An especially pertinent example is Schmitt-Grohé and Uribe (2001), who examine a sticky-price, dependent economy model and compare the welfare properties of a number of interventionist monetary policy rules with a fixed or exogenous nominal exchange rate rule. The stabilization properties of each of the interventionist monetary rules considered were superior to a fixed exchange rate rule. In this study, however, we find that a fixed exchange rate stabilizes bank balance sheets and leads to greater business cycle stability than does an inflation-targeting interest rate rule. The paper proceeds as follows. Section 2 presents a general-equilibrium model of a small open economy. Section 3 provides calibrations of models with and without the bank balance sheet channel. It also explores the contribution of alternative policy rules to business cycle stabilization along with robustness checks. Section 4 concludes. An Appendix A follows.

A monetary policy that targets inflation can ameliorate the destabilizing effects of sticky prices in a small open economy. In an economy in which sticky prices are the only nominal rigidity, an activist monetary rule leads to greater real stability than does a fixed exchange rate. However, many developing economies have a large negative debt position, much of which is denominated in foreign currencies. This paper shows that a pegged exchange rate can offer greater stabilization benefits to such an economy than does a more activist policy despite the presence of sticky prices. The exposure of banking systems to currency risk may be one reason, as Calvo and Reinhart (2002) show, that the monetary policies of many developing economies target the nominal exchange rate. Our analysis applies only to a permanent, credible fixed exchange rate. Vulnerability of the economy to devaluation may indicate that a fixed exchange rate without a commitment technology may be subject to shocks, reflecting changes in expectations of future devaluation. Mendoza and Uribe (2000) model an unsustainable fixed exchange rate-based stabilization plan with a stochastic timing of a future devaluation. Uncertainty about the timing of the devaluation results in sharper real responses to the stabilization plan and anticipated breakdown. In Mendoza (2001) shocks to the probability of future devaluations lead to a current contraction, because a future devaluation increases the likelihood and severity of future sudden stops in capital flows. In our model, current investment and consumption are affected by expectations about the future default-risk premium as well as its current level. An increase in the probability of a future devaluation will generate an expected rise in the country’s default-risk premium and a business cycle contraction, even if the current exchange rate remains stable. The potential for fixed exchange rate regimes to be subject to credibility shocks emphasizes the need for a commitment mechanism, such as dollarization. Our model abstracts from several aspects of the reality of financial systems. First, as in Carlstrom and Fuerst (1997) and subsequent literature, we assume that all loans are very short term. The share of short-term debt in total debt in Asian countries was substantial at the onset of the financial crisis9, which may lend support to this modeling choice. Extending the monitoring cost literature to an analysis of longer-term debt contracts is beyond the scope of this paper. However, long-term debt may be less subject to sharp swings in the default-risk premium, moderating our results. Second, our model assumes the absence of markets that allow financial intermediaries to hedge or otherwise ameliorate their currency mismatch. This is described by Eichengreen and Hausmann (1999) as the ‘‘original sin’’ view of liability dollarization, which argues that the lack of opportunities to issue external domestic currency debt or hedge foreign currency debt is a function of undeveloped financial markets in developing economies. Others such as Burnside et al. (2001) argue that the currency mismatch is the result of implicit government guarantees. If true, eliminating such a distortionary policy would reduce the incentive of banks to accept such destabilizing currency mismatches.