Hedger of Last Resort: Evidence from Brazilian FX Interventions, Local Credit and Global Financial Cycles
56 Pages Posted: 5 Apr 2018 Last revised: 4 Feb 2022
Date Written: March 2018
We show that local policy attenuates global financial cycle (GFC)'s spillovers. We exploit GFC shocks and Brazilian central bank interventions in FX derivatives using threematched 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 oflast 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: Bank credit, central bank, foreign exchange, Hedging, monetary policy
JEL Classification: E5, F3, G01, G21, G28
Suggested Citation: Suggested Citation