Template-type: ReDIF-Paper 1.0
Author-Name: Philippe Bacchetta
Author-Name-First: Philippe
Author-Name-Last: Bacchetta
Author-Person: pba11
Author-Name: Dr. Rachel Cordonier
Author-Name-First: Rachel
Author-Name-Last: Cordonier
Author-Person:  pco943
Author-Name: Ouarda Merrouche
Author-Name-First: Ouarda
Author-Name-Last: Merrouche
Author-Person: pme189
Title: The rise in foreign currency bonds: the role of US monetary policy and capital controls
Abstract: An unintended consequence of loose US monetary policy is the increase in currency risk exposure abroad. Using firm-level data on corporate bond issuances in 17 emerging market economies (EME) between 2003 and 2015, we find that EME companies are more likely to issue bonds in foreign currency when US interest rates are low. This increase occurs across the board, including for firms more vulnerable to foreign exchange exposure, and is particularly strong for bonds issued in local markets. Interestingly, capital controls on bond inflows significantly decrease the likelihood of issuing in foreign currency and can even eliminate the adverse impact of low US interest rates. In contrast, macroprudential foreign exchange regulations tend to increase foreign currency issuances of non-financial corporates, although this effect can be significantly reduced using capital controls.
Length: 64 pages
Creation-Date: 2021
Contact-Email: forschung@snb.ch
File-URL: https://www.snb.ch/en/publications/research/working-papers/2021/working_paper_2021_11
File-Format: text/html
Number: 2021-11
Classification-JEL: G21, G30, E44
Keywords: Foreign currency, corporate bonds, emerging markets, capital controls, currency risk
Handle: RePEc:snb:snbwpa:2021-11