The typical conclusion reached when researchers examine exchange rate exposure using a linear model is that only a few firms are exposed. This finding is puzzling since institutional knowledge and basic finance theory points to a larger effect. In this paper, we compare results obtained using a...

This paper shows that when financial frictions are dynamically modeled, broader inferences can be drawn from DSGE models with asymmetric information costs. By embedding a partial equilibrium framework of bankruptcy proceedings in a dynamic New Keynesian model I find, for example, that financial...

This paper tests the presence of balance sheets effects and analyzes the implications for exchange rate policies in emerging markets. The results reveal that the emerging market bond index (EMBI) is negatively related to the banks. foreign currency leverage, and that these banks. foreign...

Despite the extensive work on currency mismatches, research on the significance of maturity mismatches in emerging market countries is scarce. In this paper, I show that emerging market banks' maturity mismatches increase during periods of high capital inflows, and that banks with high maturity...

Emerging market countries that have improved institutions and attained intermediate levels of institutional quality have experienced severe financial crises following capital flow reversals. However, there is also evidence that countries with strong institutions and deep capital markets are less...

Using firm level data, we report a significant fall in the exchange rate exposure of emerging market firms over the past 10 years, and relate this to higher derivatives market participation. Our methodology follows a three stage approach. First, we measure and report foreign exchange exposures...

The literature typically finds that the development of financial markets has decreased the ability of central banks to affect the real economy. This paper shows that this negative relationship does not hold for the balance sheet channel of monetary transmission and bank globalization -- one...

This paper examines the effect of financial frictions on the strength of the monetary transmission mechanism. The financial accelerator model of Bernanke, Gertler, and Gilchrist (1999) implies that the transmission mechanism of monetary policy should be stronger in countries with high levels of...

This paper shows that countries characterized by a financial accelerator mechanism may reverse the usual finding of the literature -- flexible exchange rate regimes do a worse job of insulating open economies from external shocks. I obtain this result with a calibrated small open economy model...

Costly state verification models predict that the sensitivity of borrowing costs to financial leverage is positively related to the level of state verification costs (financial frictions). This paper constructs a measure of financial frictions that is consistent with this prediction of theory....