Hedger of Last Resort: Evidence from Brazilian FX Interventions, Local Credit, and Global Financial Cycles

We show that FX interventions can be effective, particularly in attenuating global financial spillovers. We exploit global financial shocks and Brazilian central bank interventions in FX derivatives using three matched administrative registers: bank credit (to firms), foreign credit to banks, and employer-employees. After the U.S. Taper Tantrum (followed by emerging markets' FX turbulence), Brazilian banks with more foreign debt cut credit supply, reducing firm-level employment. A subsequent large policy intervention supplying derivatives against FX risks —hedger of last resort— halved the negative effects. A 2008 to 2015 panel exploiting global FX shocks and local FX interventions confirms the results and the hedging channel. However, the FX policy entails fiscal and moral hazard costs.