Consumption Baskets and Currency Choice in International Borrowing

Bengui, Julien ; Nguyen, Ha

关键词: ACCELERATOR;    AGGREGATE CONSUMPTION;    ASSET POSITION;    ASSETS;    BAILOUT;   

DOI  :  10.1596/1813-9450-5870
RP-ID  :  WPS5870

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

Most emerging markets do not borrow muchinternationally in their own currency, although doing thathas been argued as an attractive insurance mechanism. Thisphenomenon, commonly labeled "the original sin",has mostly been interpreted as evidence of thecountries' inability to borrow in domestic currencyfrom abroad. This paper provides a novel explanation forthat phenomenon: not that countries are unable to borrowabroad in their currency, they might not need to do so. Inthe model, the small prevalence of external borrowing indomestic currency arises as an equilibrium outcome, despitethe absence of exogenous frictions or limits on marketparticipation. The equilibrium outcome is driven by the factthat domestic and foreign lenders have differentialconsumption baskets. In particular, a large part of domesticlenders' consumption basket is denominated in domesticcurrency whereas all of foreign lenders' is in dollars.A depreciation of domestic currency, which tends to occur inbad times, is therefore less harmful to domestic savers thanto foreign investors. This makes domestic lenders require alower premium than foreign lenders on domestic currencydebt. For plausible calibrations, this consumption basketeffect can induce foreign investors to pull out of thedomestic currency debt market.