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Hedger of Last Resort: evidence from Brazilian FX interventions, local credit, and global financial cycles

Rodrigo Gonzalez, Dmitry Khametshin (), Jose-Luis Peydro () and Andrea Polo

No 509, Working Papers Series from Central Bank of Brazil, Research Department

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.

Date: 2019-11
New Economics Papers: this item is included in nep-ifn and nep-ure
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https://www.bcb.gov.br/pec/wps/ingl/wps509.pdf (application/pdf)

Related works:
Working Paper: Hedger of Last Resort: Evidence from Brazilian FX Interventions, Local Credit, and Global Financial Cycles (2019) Downloads
Working Paper: Hedger of Last Resort: Evidence from Brazilian FX Interventions, Local Credit and Global Financial Cycles (2019) Downloads
Working Paper: Hedger of last resort: evidence from Brazilian FX interventions, local credit, and global financial cycles (2019) Downloads
Working Paper: Hedger of Last Resort: Evidence from Brazil on FX Interventions, Local Credit and Global Financial Cycles (2019) Downloads
Working Paper: Hedger of Last Resort: Evidence from Brazilian FX Interventions, Local Credit and Global Financial Cycles (2018) Downloads
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