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

56 Pages Posted: 5 Apr 2018 Last revised: 4 Feb 2022

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; Universitat Pompeu Fabra - Faculty of Economic and Business Sciences; Einaudi Institute for Economics and Finance (EIEF); Barcelona Graduate School of Economics (Barcelona GSE); Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Multiple version iconThere are 3 versions of this paper

Date Written: March 2018

Abstract

We show that local policy attenuates global financial cycle (GFC)'s spillovers. We exploit GFC shocks and Brazilian central bank interventions in FX derivatives using threematched administrative registers: credit, foreign credit to banks, and employer-employee. After U.S. Taper Tantrum (followed by Emerging Markets FX turbulence), Brazilian banks with more foreign debt cut credit supply, thereby reducing firm-level employment. A subsequent large policy intervention supplying derivatives against FX risks-hedger oflast resort-halves the negative effects. A 2008-2015 panel exploiting GFC shocks and FX interventions confirms these results and the hedging channel. However, the policy entails fiscal and moral hazard costs.

Keywords: Bank credit, central bank, foreign exchange, Hedging, monetary policy

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 (March 2018). CEPR Discussion Paper No. DP12817, Available at SSRN: https://ssrn.com/abstract=3155112

Rodrigo Gonzalez (Contact Author)

Banco Central do Brasil ( email )

P.O. Box 08670
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Brasilia, Distr. Federal 70074-900
Brazil

Bank of International Settlements ( email )

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Dmitry Khametshin

Banco de España ( email )

Alcala 50
Madrid 28014
Spain

Jose-Luis Peydro

Imperial College London ( email )

South Kensington Campus
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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

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

Ramon Trias Fargas 25-27
Barcelona, 08005
Spain

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

Via Due Macelli, 73
Rome, 00187
Italy

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005
Spain

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

European Corporate Governance Institute (ECGI) ( email )

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1000 Brussels
Belgium

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