Articles

Financing Decisions of Firms and Central Bank Policy

A.-T. GOH, J. OLIVIER

Journal of International Money and Finance

November-December 2004, vol. 23, n°7-8, pp.1187-1207

Departments: Economics & Decision Sciences, Finance, GREGHEC (CNRS)

Keywords: Foreign borrowing, Central bank, Asian crisis

http://ssrn.com/abstract=296867


This paper aims to explain why unhedged foreign borrowing by South East Asian corporations rose sharply during the few years prior to the crisis despite little change in fundamentals. We show that decisions of firms and decisions of the central bank are complementary. Consequently, a small shock to fundamentals may have a large and permanent impact on the equilibrium composition of firms’ borrowing


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