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Atish R. Ghosh, Jonathan D. Ostry, Mahvash S. Qureshi Non-financial corporations in emerging market economies (EMEs) increasingly rely on foreign currency debt for financing. Since the global crisis of 2008, the amount of dollar-denominated debt of EME corporations has quadrupled. 1 Research has shown that interest rate differentials between EMEs and the US have contributed significantly to this phenomenon (Bruno and Shin 2017). In essence, EME corporations prefer to borrow in foreign currency when there is a ‘carry’, meaning foreign interest rates are low relative to domestic interest rates. This carry trade borrowing leaves the firms exposed to sudden stops in capital flows and associated currency depreciations (Bruno and Shin 2020). More broadly, the accumulation of external debt on private balance sheets can lead or contribute to currency depreciation spirals and thereby poses risks for EME growth and financial stability (Acharya et al. 2015, Du and Schreger 2017). These i

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