Prudential Regulation, Currency Mismatches and Exchange Rates in Latin America and the Caribbean

Banco de México Working Papers N° 2017-21

42 Pages Posted: 13 Mar 2019

Date Written: december 20, 2017

Abstract

This paper gathers and systemizes self-reported information about exchange rate flexibility and FX regulation in Latin America and the Caribbean for a period of twenty years beginning in 1992. The results show that, in countries in which the use of limits, liquidity and reserve requirements on FX positions was more common, the frequency of use of these instruments was particularly high during the transition towards more flexible exchange rate regimes. The exception refers to economies with a long tradition of financial dollarization in which the prudential policies were more spread out over time, possibly due to countercyclical adjustments of the regulatory instruments. Along these lines, policymakers reported that the first goal in using the regulation was to reduce currency mismatches, but, in the flexible regimes that were adopted during the 2000s the instruments were also used to dampen volatility in the exchange rate.

Keywords: Prudential Regulation; Exchange Rate Regimes; Foreign Currency Positions

JEL Classification: E58; F31

Suggested Citation

Tobal, Martin, Prudential Regulation, Currency Mismatches and Exchange Rates in Latin America and the Caribbean (december 20, 2017). Banco de México Working Papers N° 2017-21 , Available at SSRN: https://ssrn.com/abstract=3338268

Martin Tobal (Contact Author)

Banco de Mexico ( email )

Ave Cinco e Mayo 1
Col. Centro
Mexico City, Mexico DF 06059
Mexico

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