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α: calibrated so average coauthorship-adjusted count equals average raw count
The paper examines the macroeconomic and bank-level effects of raising foreign currency reserve requirements in a partially dollarized economy. Focusing on Peru, we study policy changes implemented by the Central Bank between 2008 and 2017, aimed at containing rapid credit growth fueled by foreign currency deposits. Empirical results show that higher reserve requirements in foreign currency reduced overall credit supply, with heterogeneous effects across banks depending on their reliance on foreign currency funding. Motivated by these findings, we develop a dynamic stochastic general equilibrium model of a small open economy with financial frictions, bank heterogeneity, and financial dollarization. The model replicates the empirical results and provides insights into the mechanism through which this macroprudential tool affects credit and aggregate dynamics, highlighting its effectiveness in managing credit booms in dollarized banking systems.