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

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  • Boris Hofmann
  • Hyun Song Shin
  • Mauricio Villamizar-Villegas

Abstract

We employ a unique central bank dataset of foreign exchange operations to study the impact of FX intervention on domestic credit. Using loan-level data in the credit registry, we find that sterilized purchases of dollars by the central bank dampen the flow of new domestic corporate loans. The impact is particularly strong for borrowers with larger currency mismatches and for banks with thinner capital buffers. Our analysis sheds light on the role of FX intervention as part of the macroprudential toolkit during credit booms associated with episodes of capital inflow surges.

Suggested Citation

  • 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.
    • Handle: RePEc:bis:biswps:774
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    More about this item

    Keywords

    FX intervention; credit registry; emerging markets; financial channel of exchange rates;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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