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FX intervention and domestic credit: evidence from high-frequency micro data

Boris Hofmann (), Hyun Song Shin and Mauricio Villamizar-Villegas ()

Borradores de Economia from Banco de la Republica de Colombia

Abstract: We employ a rarely available high-frequency micro dataset to study the impact of foreign exchange intervention on domestic credit growth. We find that sterilised purchases of dollars by the central bank dampens the flow of new domestic corporate loans in Colombia. Slowing the pace of currency appreciation plays a key role in dampening credit expansion. Our analysis sheds light on the role of FX intervention as part of the financial stability-oriented policy response to credit booms associated with capital inflow surges. **** RESUMEN: En este trabajo utilizamos datos panel de frecuencia diaria, para estudiar el impacto de las intervenciones cambiarias sobre el crédito comercial. Para el caso colombiano, encontramos que las compras (esterilizadas) de divisas ayudaron a frenar el crecimiento del crédito, sobre todo en momentos donde hubo fuertes entradas de capital. Nuestros hallazgos también indican que la devaluación de la moneda jugó un papel fundamental en la disminución del crédito. Nuestro análisis resalta el papel de la intervención cambiaria como herramienta de estabilidad financiera.

Keywords: FX intervention; credit registry; emerging markets; financial channel of exchange rates; Intervención cambiaria; créditos comerciales; países emergentes; canal financiero de tasa de cambio (search for similar items in EconPapers)
JEL-codes: E58 F31 F33 F41 G20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2019-03
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Persistent link: https://EconPapers.repec.org/RePEc:bdr:borrec:1069

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