Growth effects of currency mismatches: evidence from emerging economies

This article investigates empirically the effects of currency mismatches on economic growth and volatility of growth in emerging market economies. Using the Arellano-Bond dynamic panel data approach, the analyses provide evidence on the presence of adverse growth effects of currency mismatches. This illustrates the crucial role played by foreign currency denominated debts in the propagation mechanism of contractionary depreciations in emerging economies in the last decade. Further evidence from estimations implies that the adverse effects of mismatches on growth and growth volatility are more pronounced with higher exchange rate fluctuations.