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Hedger of Last Resort: Evidence from Brazilian FX Interventions, Local Credit and Global Financial Cycles

BIS Working Paper No. 832

50 Pages Posted: 19 Dec 2019

See all articles by Rodrigo Gonzalez

Rodrigo Gonzalez

Banco Central do Brasil; Bank of International Settlements

Dmitry Khametshin

Banco de España

José-Luis Peydró

Imperial College London; Centre for Economic Policy Research (CEPR); Universitat Pompeu Fabra - Faculty of Economic and Business Sciences

Andrea Polo

Luiss Guido Carli University - Department of Economics and Finance; Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper

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

Gonzalez, Rodrigo and Khametshin, Dmitry and Peydro, Jose-Luis and Polo, Andrea, Hedger of Last Resort: Evidence from Brazilian FX Interventions, Local Credit and Global Financial Cycles (December 18, 2019). BIS Working Paper No. 832, Available at SSRN: https://ssrn.com/abstract=3506271

Rodrigo Gonzalez (Contact Author)

Banco Central do Brasil ( email )

P.O. Box 08670
SBS Quadra 3 Bloco B - Edificio-Sede
Brasilia, Distr. Federal 70074-900
Brazil

Bank of International Settlements ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Dmitry Khametshin

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Jose-Luis Peydro

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Universitat Pompeu Fabra - Faculty of Economic and Business Sciences ( email )

Ramon Trias Fargas 25-27
Barcelona, Barcelona 08005
Spain
(+34) 93 542 1756 (Phone)
(+34) 93 542 1746 (Fax)

HOME PAGE: http://https://sites.google.com/site/joseluispeydroswebpage/

Andrea Polo

Luiss Guido Carli University - Department of Economics and Finance ( email )

Via Kennedy 6
Parma, 43100 - I
Italy

Einaudi Institute for Economics and Finance (EIEF) ( email )

Via Due Macelli, 73
Rome, 00187
Italy

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

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