Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/247912 
Authors: 
Year of Publication: 
2021
Series/Report no.: 
Staff Report No. 989
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
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.
Subjects: 
real effects
macroprudential policy
international finance
derivatives hedging
FX risk management
JEL: 
E44
F31
G15
G28
G32
Document Type: 
Working Paper

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