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.