On the determinants of aggregate currency mismatch

This paper examines the determinants of aggregate currency mismatch using the panel data set of Lane and Shambaugh, covering 97 countries over 1990–2004. The estimation results show that both domestic and international factors matter. Strengthening domestic policies and institutions is necessary but not sufficient for controlling currency mismatches in developing and emerging economies. A country should be financially liberalized and open, develop domestic securities markets, prudentially supervise financial intermediaries, upgrade institutional quality, and adopt credible monetary policies. However, a choice of exchange-rate regime does not impact currency mismatching.