Regulating Carry Trades: Evidence from Foreign Currency Borrowing of Corporations in India

• 成果类型: Article
• 署名作者: Acharya, Viral V.; Vij, Siddharth
• 署名单位: New York University; Centre for Economic Policy Research - UK; National Bureau of Economic Research; University System of Georgia; University of Georgia
• 刊物名称: REVIEW OF ECONOMIC STUDIES
• ISSN/ISSBN: 0034-6527
• DOI: 10.1093/restud/rdae089
• 发表日期: 2025
• 页码: 2071-2107
• 关键词: crises; credit; FLOWS

摘要

We establish that macroprudential controls limiting capital flows can curb risks arising from foreign currency borrowing by corporates in emerging markets. Firm-level data show that Indian firms tend to issue more foreign currency debt when the interest rate differential between India and the U.S. is higher. This carry trade relationship, however, breaks down once regulators institute more stringent interest rate caps on borrowing; in response, riskier borrowers cut issuance most. Prior to adoption of this macroprudential measure, stock price exposure of issuers to currency risk rises after issuance, as witnessed during the taper tantrum episode of 2013; this source of vulnerability is nullified by the measure, as confirmed during the October 2018 oil price shock and the COVID-19 outbreak. We find no evidence of the policy's efficacy being undermined by leakage or regulatory arbitrage.