Research

Abstract:

This paper investigates the granular transmission of U.S. monetary policy shocks to deviations from the uncovered interest rate parity (UIPDs) in emerging economies. Using a comprehensive dataset from Chile that accounts for firm-bank relationships and the time-variant characteristics of both firms and banks, we uncover several key findings: (1) Shocks to the federal funds rate (FFR) increase banks' costs of foreign borrowing. (2) These higher credit costs disproportionately affect small firms, raising their UIPDs more than for large firms. (3) This size-differentiated impact stems from the relatively higher interest rates on domestic currency loans faced by small firms. (4) In contrast, interest rates on dollar-denominated loans respond homogeneously across all firms. (5) We find no differential effect on loan quantities, suggesting an active role of credit supply and demand. We rationalize these findings with a small open economy model of corporate default that incorporates heterogeneous firms borrowing from domestic banks in both foreign and domestic currencies. In our model, a higher FFR reduces the marginal cost of defaulting on domestic-currency debt for small firms more than for large firms.

Abstract:

We document a novel channel through which domestic bank regulations generate cross-border real effects via international trade. Our setting is a one-time, unexpected increase in loan loss provisions in Spain in 2012. Using comprehensive administrative data from the Spanish credit register matched with customs data, we show that importers relying on the most affected banks experienced sharp reductions in credit supply, which led to a decline in their purchases abroad. Leveraging bilateral trade data at the country-product level, we find that Spanish aggregate imports declined, indicating limited reallocation across firms: the shock on highly exposed importers was not offset by the expansion from less exposed ones. This decline in Spain's import demand is transmitted internationally, as total exports of Spain's trading partners fell. The effect was stronger for countries with less developed financial systems, for exporters facing higher bilateral trade costs vis-à-vis Spain, and for products that are harder to reallocate across markets. Our findings highlight international trade as a key transmission mechanism of banking regulation -and domestic shocks more broadly- with implications for the cross-border coordination of prudential policy.

Abstract:

Macroprudential FX regulations aim to reduce systemic currency-mismatch risks, yet their distributional effects on firms’ access to credit remain poorly understood. This paper studies Peru’s 2014 dedollarization policy, which sharply increased reserve requirements on banks’ foreign-currency liabilities in proportion to their dollar lending to nontradable firms. Exploiting cross-sectional variation in banks’ exposure and using administrative loan-level data covering the universe of firms, I find that moving from the median to the 75th percentile of exposure reduces the growth of new total loans by roughly 10 percentage points for micro and small firms, with no significant effects for medium or large firms. Larger firms absorb the shock by reallocating borrowing across banks and into local currency credit, whereas micro firms, experience sharp declines in both dollar and total credit, higher borrowing costs, and modest employment losses. The results highlight a trade-off between macroprudential objectives and credit access for small firms.