Local stock markets adjust sluggishly to changes in local inflation. When the local rate of inflation increases, local investors subsequently earn significantly lower real returns on local stocks, but not on local bonds or foreign stocks. Our results suggest that local stock market investors use...

This paper studies how the currency composition of public debt affects debt sustainability in developing countries. We show empirically that the debt-to-GDP ratio tends to grow at a faster rate when countries with a high share of foreign currency debt face a currency depreciation. The paper also...