Macroprudential FX regulations: Shifting the snowbanks of FX vulnerability?

Toni Ahnert, Kristin Forbes, Christian Friedrich and Dennis Reinhardt

Journal of Financial Economics, 2021, vol. 140, issue 1, 145-174

Abstract: We use a new data set on macroprudential foreign exchange (FX) regulations to evaluate their effectiveness and unintended consequences. Our results support the predictions of a model in which banks and markets lend in different currencies, but only banks can screen firm productivity. Regulations significantly reduce bank FX borrowing, and firms respond by increasing FX debt issuance. Moreover, regulations reduce bank sensitivity to exchange rates but are less effective at reducing the sensitivity of the broader economy. Therefore, FX regulations mitigate bank vulnerability to currency fluctuations and the global financial cycle, but appear to partially shift the snowbanks of vulnerability elsewhere.

Keywords: Macroprudential; FX regulations; Currency mismatch; Capital flows (search for similar items in EconPapers)
JEL-codes: F32 F34 F38 G15 G28 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (47)

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Related works:
Working Paper: Macroprudential FX Regulations: Shifting the Snowbanks of FX Vulnerability? (2018)
Working Paper: Macroprudential FX regulations: shifting the snowbanks of FX vulnerability? (2018)
Working Paper: Macroprudential FX Regulations: Shifting the Snowbanks of FX Vulnerability? (2018)
Working Paper: Macroprudential FX Regulations: Shifting the Snowbanks of FX Vulnerability? (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:140:y:2021:i:1:p:145-174

DOI: 10.1016/j.jfineco.2020.10.005

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