Department of Economics and Business - Universitat Pompeu Fabra

Title:: Hedger of last resort: Evidence from Brazilian FX interventions, local credit, and global financial cycles
Authors:: Rodrigo Barbone Gonzalez, Dmitry Khametshin, José-Luis Peydró and Andrea Polo
Date:: October 2018 (Revised: November 2022)
Abstract:: We show that FX interventions attenuate global financial cycle (GFC)'s spillovers. We exploit GFC shocks and Brazilian central bank interventions in FX derivatives using three matched administrative registers: credit, foreign credit to banks, and employer-employee. After U.S. Taper Tantrum (followed by Emerging Markets FX turbulence), Brazilian banks with more foreign debt cut credit supply, thereby reducing firm-level employment. A subsequent large policy intervention supplying derivatives against FX risks-hedger of last resort-halves the negative effects. A 2008-2015 panel exploiting GFC shocks and FX interventions confirms these results and the hedging channel. However, the policy entails fiscal and moral hazard costs.
Keywords:: foreign exchange, monetary policy, central bank, bank credit, hedging
JEL codes:: E5, F3, G01, G21, G28
Area of Research:: Finance and Accounting / Macroeconomics and International Economics / Labour, Public, Development and Health Economics

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