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

Gonzalez, Rodrigo Barbone; Khametshin, Dmitry; Peydró, José-Luis; Polo, Andrea, 1983-

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

Citation

Gonzalez, R, Khametshin, D, Peydró, J, Polo, A. Hedger of last resort: evidence from Brazilian FX interventions, local credit, and global financial cycles. 2022. handle: http://hdl.handle.net/10230/37105

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Abstract

We show that FX interventions attenuate global financial cycle (GFC)’s spillovers. We exploit GFC shocks and Brazilian central bank interventions in FX derivatives using three matched administrative registers: credit, foreign credit to banks, and employer-employee. After U.S. Taper Tantrum (followed by Emerging Markets FX turbulence), Brazilian banks with more foreign debt cut credit supply, thereby reducing firm-level employment. A subsequent large policy intervention supplying derivatives against FX risks—hedger of last resort—halves the negative effects. A 2008-2015 panel exploiting GFC shocks and FX interventions confirms these results and the hedging channel. However, the policy entails fiscal and moral hazard costs.