FX Intervention and Domestic Credit: Evidence from High-Frequency Micro Data
30 Pages Posted: 19 Mar 2019 Last revised: 13 Dec 2021
Date Written: March 18, 2019
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
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