Hedger of Last Resort: Evidence from Brazilian FX Interventions, Local Credit and Global Financial Cycles
50 Pages Posted: 19 Dec 2019
Date Written: December 18, 2019
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