Institutional designs to alleviate liquidity shortages in a two-country model

Hiroshi Fujiki

Japan and the World Economy, 2014, vol. 31, issue C, 32-46

Abstract: Fujiki (2003, 2006) extends the Freeman (1996) model to a two-country model, and demonstrates that elastic money supplies in foreign exchange markets yield efficiency gains in monetary equilibrium, and that several institutional designs achieve the desired elastic money supplies equally. This paper considers four institutional designs using a simplified version of the model of Fujiki (2003, 2006), which includes a central bank intervention in foreign exchange markets, a combination of central bank discount window policy and the CLS Bank, foreign currency supply operations based on central bank swap lines, and cross-border collateral arrangements. These institutional designs yield the same efficiency gains in our model.

Keywords: Foreign exchange market; CLS Bank; Cross-border collateral arrangements; Liquidity swap lines (search for similar items in EconPapers)
JEL-codes: E58 F31 F33 (search for similar items in EconPapers)
Date: 2014
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Working Paper: Institutional Designs to Alleviate Liquidity Shortages in a Two- Country Model (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:japwor:v:31:y:2014:i:c:p:32-46

DOI: 10.1016/j.japwor.2014.05.002

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