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Abstract

We show that local central bank policies can attenuate spillovers from global financial cycles. We analyze global shocks triggered by the US monetary policy and Brazilian interventions in foreign exchange (FX) derivatives. We show that after U.S. Federal Reserve Taper Tantrum, Brazilian banks with larger ex-ante reliance on foreign debt reduced credit supply. However, a large FX intervention program supplying derivatives against FX risks – hedger of last resort – halved the negative effects. We obtain similar results in a larger panel dataset.