Hedger of Last Resort: Evidence from Brazilian FX Interventions, Local Credit and Global Financial Cycles
50 Pages Posted: 19 Dec 2019
There are 3 versions of this paper
Hedger of Last Resort: Evidence from Brazilian FX Interventions, Local Credit, and Global Financial Cycles
Hedger of Last Resort: Evidence from Brazilian FX Interventions, Local Credit and Global Financial Cycles
Hedger of Last Resort: Evidence from Brazilian FX Interventions, Local Credit and Global Financial Cycles
Date Written: December 18, 2019
Abstract
We show that local central bank policies attenuate global financial cycle (GFC)'s spillovers. For identification, we exploit GFC shocks and Brazilian interventions in FX derivatives using three matched administrative registers: credit, foreign credit flows to banks, and employer-employee. After U.S. Federal Reserve Taper Tantrum (followed by strong Emerging Markets FX depreciation and volatility increase), Brazilian banks with larger ex-ante reliance on foreign debt strongly cut credit supply, thereby reducing firm-level employment. However, a large FX intervention program supplying derivatives against FX risks-hedger of last resort-halves the negative effects. Finally, a 2008-2015 panel exploiting GFC shocks and local related policies confirm these results.
Keywords: foreign exchange, monetary policy, central bank, bank credit, hedging
JEL Classification: E5, F3, G01, G21, G28
Suggested Citation: Suggested Citation