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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

    () (Banco de la República de Colombia)

Abstract

We employ a rarely available high-frequency micro dataset to study the impact of foreign exchange intervention on domestic credit growth. We find that sterilised purchases of dollars by the central bank dampens the flow of new domestic corporate loans in Colombia. Slowing the pace of currency appreciation plays a key role in dampening credit expansion. Our analysis sheds light on the role of FX intervention as part of the financial stability-oriented policy response to credit booms associated with capital inflow surges. **** RESUMEN: En este trabajo utilizamos datos panel de frecuencia diaria, para estudiar el impacto de las intervenciones cambiarias sobre el crédito comercial. Para el caso colombiano, encontramos que las compras (esterilizadas) de divisas ayudaron a frenar el crecimiento del crédito, sobre todo en momentos donde hubo fuertes entradas de capital. Nuestros hallazgos también indican que la devaluación de la moneda jugó un papel fundamental en la disminución del crédito. Nuestro análisis resalta el papel de la intervención cambiaria como herramienta de estabilidad financiera.

Suggested Citation

  • Boris Hofmann & Hyun Song Shin & Mauricio Villamizar-Villegas, 2019. "FX intervention and domestic credit: evidence from high-frequency micro data," Borradores de Economia 1069, Banco de la Republica de Colombia.
  • Handle: RePEc:bdr:borrec:1069
    DOI: 10.32468/be.1069
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Barbone Gonzalez, Rodrigo & Khametshin, Dmitry & Peydró, José Luis & Polo, Andrea, 2018. "Hedger of Last Resort: Evidence from Brazilian FX Interventions, Local Credit and Global Financial Cycles," CEPR Discussion Papers 12817, C.E.P.R. Discussion Papers.
    2. Douglas W. Diamond & Yunzhi Hu & Raghuram G. Rajan, 2020. "The Spillovers from Easy Liquidity and the Implications for Multilateralism," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 68(1), pages 4-34, March.
    3. Alex Carrasco & David Florian Hoyle & Rafael Nivin, 2019. "SFX Interventions, Financial Intermediation, and External Shocks in Emerging Economies," Working Papers 160, Peruvian Economic Association.
    4. Ryan Niladri Banerjee & Boris Hofmann & Aaron Mehrotra, 2020. "Corporate investment and the exchange rate: The financial channel," BIS Working Papers 839, Bank for International Settlements.
    5. Perez-Reyna, David & Villamizar-Villegas, Mauricio, 2019. "Exchange rate effects of financial regulations," Journal of International Money and Finance, Elsevier, vol. 96(C), pages 228-245.
    6. Yavuz Arslan & Carlos Cantú, 2019. "The size of foreign exchange reserves," BIS Papers chapters, in: Bank for International Settlements (ed.),Reserve management and FX intervention, volume 104, pages 1-23, Bank for International Settlements.
    7. Yun, Youngjin, 2020. "Reserve accumulation and bank lending: Evidence from Korea," Journal of International Money and Finance, Elsevier, vol. 105(C).
    8. Shalva Mkhatrishvili & Giorgi Tsutskiridze & Lasha Arevadze, 2020. "Sterilized FX interventions may not be so sterilized," NBG Working Papers 02/2020, National Bank of Georgia.

    More about this item

    Keywords

    FX intervention; credit registry; emerging markets; financial channel of exchange rates; Intervención cambiaria; créditos comerciales; países emergentes; canal financiero de tasa de cambio;

    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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