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Hedger of last resort: evidence from Brazilian FX interventions, local credit, and global financial cycles

Author

Listed:
  • Rodrigo Barbone Gonzalez

    (Banco Central do Brasil and Bank for International Settlements)

  • Dmitry Khametshin

    (Banco de España)

  • José-Luis Peydró

    (ICREA-UPF, Imperial College, CREI, Barcelona GSE and CEPR)

  • Andrea Polo

    (LUISS, UPF, EIEF, Barcelona GSE, CEPR and ECGI)

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.

Suggested Citation

  • Rodrigo Barbone Gonzalez & Dmitry Khametshin & José-Luis Peydró & Andrea Polo, 2020. "Hedger of last resort: evidence from Brazilian FX interventions, local credit, and global financial cycles," Working Papers 2014, Banco de España.
    • Handle: RePEc:bde:wpaper:2014
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    Cited by:

    1. Daniela Gabor, 2021. "The Wall Street Consensus," Development and Change, International Institute of Social Studies, vol. 52(3), pages 429-459, May.
    2. Polo, Andrea & Gonzalez, Rodrigo & Khametshin, Dmitry & Peydró, José-Luis, 2018. "Hedger of Last Resort: Evidence from Brazilian FX Interventions, Local Credit and Global Financial Cycles," CEPR Discussion Papers 12817, C.E.P.R. Discussion Papers.
    3. Boris Hofmann & Hyun Song Shin & Mauricio Villamizar-Villegas, 2019. "FX intervention and domestic credit: Evidence from high-frequency micro data," BIS Working Papers 774, Bank for International Settlements.
    4. Pierre-Richard Agénor & Timothy Jackson & Luiz Awazu Pereira da Silva, 2020. "Foreign exchange intervention and financial stability," BIS Working Papers 889, Bank for International Settlements.
    5. Becker, Chris & Ossandon Busch, Matias & Tonzer, Lena, 2021. "Macroprudential policy and intra-group dynamics: The effects of reserve requirements in Brazil," Journal of Corporate Finance, Elsevier, vol. 71(C).
    6. Syarifuddin, Ferry & Izzulhaq, Syahid, 2020. "The Effectiveness of Futures-based Foreign Exchange Intervention: Comparative Studies of Brazil and India," MPRA Paper 104709, University Library of Munich, Germany.
    7. Yannis Dafermos & Daniela Gabor & Jo Michell, 2023. "FX swaps, shadow banks and the global dollar footprint," Environment and Planning A, , vol. 55(4), pages 949-968, June.
    8. Martin Vesna, 2020. "Intervention Strategies in Foreign Exchange Market," Economic Themes, Sciendo, vol. 58(3), pages 381-399, September.
    9. Gabor, Daniela, 2020. "The Wall Street Consensus," SocArXiv wab8m, Center for Open Science.

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    More about this item

    Keywords

    foreign exchange; monetary policy; central bank; bank credit; hedging;
    All these keywords.

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • F3 - International Economics - - International Finance
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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