A Historical Perspective on Prudential Regulation, Currency Mismatches and Exchange Rates in Latin America and the Caribbean

Abstract

This paper runs a survey across seventeen countries from Latin American and the Caribbean about the use, implementation characteristics and policy motivations of limits and requirements on FX positions, as well as the exchange rate regimes of these economies over 1992-2012. Among other novel stylized facts, we show that when referring to policy motivations, national authorities linked their regulatory measures mostly to currency mismatches and fluctuations of the exchange rate, and this pattern was clearer for the more flexible exchange rate regimes adopted in the aftermath of the currency crisis of the 1990s and early 2000s. Thus, we use the survey and the synthetic control method to show that changes in limits and requirements on FX positions affected fluctuations of the exchange rate.