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Finance


Patterns, Trends and Policy Implications of Private Spending on Skills Development in Mexico and the United States
Székely, Miguel; Mendoza, Pamela
Working Papers - English - Mar, 2017

This paper explores families’ investment in skills development through education in a high-inequality, low-education quality country such as Mexico, comparing it to a lower-inequality, higher-quality education country such as the United States. The paper uses a series of high-quality Household Income and Expenditure Surveys for both countries spanning around 20 years and different methodological approaches. Of particular interest is the analysis of education expenditure patterns along the income distribution. Policy implications for both cases are discussed. While in Mexico stimulating private spending in education through public resources might be regressive, the opposite might be the case in the United States.

Related JEL Codes:
D1 - Household Behavior and Family Economics
I2 - Education and Research Insititutions
J21 - Labor Force and Employment, Size, and Structure


Capital Requirements, Risk-Taking and Welfare in a Growing Economy
Pereira da Silva, Luiz A.; Agénor, Pierre-Richard
Working Papers - English - Mar, 2017

The effects of capital requirements on risk-taking and welfare are studied in a stochastic overlapping generations model of endogenous growth with banking, limited liability, and government guarantees. Capital producers face a choice between a safe technology and a risky (but socially inefficient) technology, and bank risk-taking is endogenous. Setting the capital adequacy ratio above a structural threshold can eliminate the equilibrium with risky loans (and thus inefficient risk-taking), but numerical simulations show that this may entail a welfare loss. In addition, the optimal ratio may be too high in practice and may concomitantly require a broadening of the perimeter of regulation and a strengthening of financial supervision to prevent disintermediation and distortions in financial markets.

Related JEL Codes:
E44 - Financial Markets and the Macroeconomy
G28 - Government Policy and Regulation
O41 - One, Two, and Multisector Growth Models


Corporate Currency Risk and Hedging in Chile: Real and Financial Effects
Hansen, Erwin; Alvarez, Roberto
Working Papers - English - Mar, 2017

This paper examines a panel (1994-2014) of Chilean non-financial firms, both publicly listed and private, which was built to analyze the determinants of the use of foreign currency debt and their potential consequences for firm investment and profitability. It is found that foreign assets and the use of FX derivatives are positively associated with firms’ use of foreign currency debt. Also, depending on the estimation method, exports appear as an important determinant of the use of foreign currency debt. In terms of the potential effect of holding foreign currency debt on firms’ performance after an exchange rate devaluation, no statistical differential effect is identified on either firm profitability or firm investment. This (lack of) result is interpreted as evidence that firms match liabilities and assets denominated in foreign currency and that firms actively involved in hedging aim to reduce their exposure to foreign exchange fluctuations.

Related JEL Codes:
E22 - Capital; Investment; Capacity
F34 - International Lending and Debt Problems
G31 - Capital Budgeting; Fixed Investment and Inventory Studies


The Correlation Effect between Commodity Prices and Exchange Rate for Brazilian Firms’ Balance Sheets
Vieira Cicogna, Maria Paula; Ribeiro do Valle, Mauricio; Toneto Junior, Rudinei; Tarantin Junior, Wilson
Technical Notes - English - Jan, 2017

This paper shows that exchange rate depreciation has a negative effect on the balance sheet of Brazilian companies with foreign indebtedness; this effect stems mainly from the negative correlation between the exchange rate and international commodity prices. While the face value of liabilities increased in proportion to the exchange rate during the period studied, revenues from exporting companies did not increase in the same proportion, since most exporting companies in Brazil are commodity producers. Therefore, the hedge expected by exporting companies’ receivables is less effective than expected. The paper also finds a negative relationship between debt by BNDES and the foreign currency debt; moreover, only total assets and total liabilities have significant effects on accessing BNDES debt. Brazil’s high dependence on the production and export of commodities affects domestic companies’ growth of domestic companies, suggesting that the correlation effect between exchange rate and international commodity prices must be considered when investigating companies’ competitiveness.

Related JEL Codes:
F34 - International Lending and Debt Problems
G10 - General Financial Markets: General
G15 - International Financial Markets


Effects of Foreign-Currency Debt on Non-Financial Latin American Firms: Evidence from the 2000s

Technical Notes - English - Dec, 2016

This paper empirically tests the effects of foreign currency debt on economic performance and investment behavior in non-financial firms in six Latin America and Caribbean countries. It is found find that domestic-currency depreciations may surprisingly increase the exchange-rate induced profits of particularly highly foreign currency-indebted firms (especially those that are foreign owned and others with foreign links). Such depreciations have only a mild correlation with gross profits. Foreign-currency debt seems to have ambiguous effects on fixed investment purchases behavior, possibly attributable to non-financial firms’ behavior as financial intermediaries. This effect tends to vanish when financial derivatives are considered.

Related JEL Codes:
F34 - International Lending and Debt Problems
G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill


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