FX Intervention and Domestic Credit: Evidence from High-Frequency Micro Data

We employ a unique central bank dataset of foreign exchange operations to study the impact of FX intervention on domestic credit. Using loan-level data in the credit registry, we find that sterilized purchases of dollars by the central bank dampen the flow of new domestic corporate loans. The impact is particularly strong for borrowers with larger currency mismatches and for banks with thinner capital buffers. Our analysis sheds light on the role of FX intervention as part of the macroprudential toolkit during credit booms associated with episodes of capital inflow surges.

Keywords: FX Intervention, Credit Registry, Emerging Markets, Financial Channel of Exchange Rates

JEL Classification: E58, F31, F33, F41, G20

Suggested Citation: Suggested Citation

Hofmann, Boris and Shin, Hyun Song and Villamizar‐Villegas, Mauricio, FX Intervention and Domestic Credit: Evidence from High-Frequency Micro Data (March 18, 2019). BIS Working Paper No. 774, Available at SSRN: https://ssrn.com/abstract=3355009