Casual Friday Development Seminar - Brown Bag Seminar

Du 24/05/2024 de 12:45 à 13:45

R1-15

MEDELLIN Juan Camilo (PSE)

Firm size, liquidity and optimal heterogeneous hedging

In this paper we depict the market imperfections and policy distortions that limit the development and sophistication of the FX hedging market in an Emerging Market such as Colombia. We find that: i) the market of FX hedging presents lack of liquidity related to the financial frictions faced by banks; which limits entry of small firms and the extent of large firms' hedges. ii) Policy interventions that aim at protecting the economy against exchange rate movements lower the incentives of small firms to protect themselves through the financial sector.