Economic analysis and research

This paper investigates the role that two key methodological choices play in the construction of textual indicators: the selection of local versus foreign newspapers and the breadth of the press coverage (i.e. the number of newspapers considered). The literature is almost silent about the robustness of the results with respect to these choices. We use as a case study the well-known economic policy uncertainty (EPU) index, taking as examples six Latin American countries and Spain. We develop EPU measures based on press with different levels of proximity, i.e. local versus foreign, and corroborate that they deliver broadly similar narratives and economic responses in a Bayesian vector autoregressive framework. Then, we show that constructing EPU indexes based on only one newspaper yields biased responses. This suggests that it is important to maximize the breadth of press coverage when building text-based indicators. That is, the larger the press coverage, the better.

Macroprudential FX regulation may reduce systemic risk; however, little is known about its unintended consequences. In this paper I study the implementation of a macroprudential FX tax by the Peruvian Central Bank. Using administrative data on the universe of formally registered firms, I show that a 10% increase in bank exposure to the policy increases the disparities in loan growth between small and large firms by 1.6 percentage points. When accounting for firms switching to local currency (soles) financing from different banks, the effect on large firms' debt is only compositional. Moreover, using data on the universe of FX contracts, I find that firms that are mostly affected by the policy are not hedged against exchange rate risk. Consistent with my empirical findings, I describe a mechanism in which currency mismatch acts as a means for relaxing small firms’ borrowing constraints and show that policies taxing dollar lending increase financing disparities between small and large firms.