The real consequences of macroprudential FX regulations

Arbeitspapier

I exploit a natural experiment in South Korea to examine the real effects of macroprudential foreign exchange (FX) regulations designed to reduce risk-taking by financial intermediaries. By using crossbank variation in the regulation's tightness, I show that it causes a reduction in the supply of FX derivatives (FXD) and results in a substantial decline in exports for the firms that were heavily relying on FXD hedging. I offer a mechanism in which imbalances in hedging demand, banks' costly equity financing, and firms' costly switching of banking relationships play a central role in explaining the empirical findings.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Staff Report ; No. 989

Classification and Topics

• Classification: Wirtschaft ; Financial Markets and the Macroeconomy ; Foreign Exchange ; International Financial Markets ; Financial Institutions and Services: Government Policy and Regulation ; Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
• Subject: real effects ; macroprudential policy ; international finance ; derivatives hedging ; FX risk management

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Jung, Hyeyoon
• Event: Veröffentlichung
• (who): Federal Reserve Bank of New York
• (where): New York, NY
• (when): 2021

Further information

• Handle: http://hdl.handle.net/10419/247912
• Last update: 10.03.2025, 11:43 AM CET