Staff Reports
The Real Consequences of Macroprudential FX Regulations
Number 989
October 2021

JEL classification: D14, E44, G15, G28, G32

Authors: Hyeyoon Jung

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.

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Hyeyoon Jung
The research in this paper received funding from New York University Center for Global Economy and Business. The funding source did not have any input into the research process or the results.

The author (Hyeyoon Jung) declares that she has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at
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