The Real Consequences of Macroprudential FX Regulations

87 Pages Posted: 4 Mar 2021 Last revised: 25 Oct 2021

See all articles by Hyeyoon Jung

Hyeyoon Jung

Federal Reserve Bank of New York

Multiple version iconThere are 2 versions of this paper

Date Written: October 2021


I exploit a natural experiment in South Korea to examine the real effects of macroprudential foreign exchange (FX) regulations designed to reduce risk-taking by financial intermediaries. By using cross-bank variation in the regulation’s tightness, I show that it causes a reduction in the supply of FX derivatives (FXD) and results in a substantial decline in exports for the firms that were heavily relying on FXD hedging. I offer a mechanism in which imbalances in hedging demand, banks’ costly equity financing, and firms’ costly switching of banking relationships play a central role in explaining the empirical findings.

Keywords: Real effects, Macroprudential policy, International finance, Derivatives hedging, FX risk management

JEL Classification: E44, F31, G15, G28, G32

Suggested Citation

Jung, Hyeyoon, The Real Consequences of Macroprudential FX Regulations (October 2021). FRB of New York Staff Report No. 989, Available at SSRN: or

Hyeyoon Jung (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics