Hedger of last resort: evidence from Brazilian FX interventions, local credit, and global financial cycles
Series: Working Papers. 2014.
Author: Rodrigo Barbone Gonzalez, Dmitry Khametshin, José-Luis Peydró and Andrea Polo.
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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.