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

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

EconStor Preprints from ZBW - Leibniz Information Centre for Economics

Abstract: We show that FX interventions attenuate global financial cycle (GFC)’s spillovers. We exploit GFC shocks and Brazilian central bank interventions in FX derivatives using three matched 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 of last 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: foreign exchange; monetary policy; central bank; bank credit; hedging (search for similar items in EconPapers)
JEL-codes: E5 F3 G01 G2 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-ban, nep-ifn, nep-mac and nep-mon
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https://www.econstor.eu/bitstream/10419/268908/1/hedger_of_last_resort.pdf (application/pdf)

Related works:
Working Paper: Hedger of last resort: Evidence from Brazilian FX interventions, local credit, and global financial cycles (2022) Downloads
Working Paper: Hedger of last resort: evidence from Brazilian FX interventions, local credit, and global financial cycles (2020) 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 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 (2018) Downloads
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