The social management of complex uncertainty: Central Bank similarity and crisis liquidity swaps at the Federal Reserve

Tim Marple ()
Additional contact information
Tim Marple: University of California, Berkeley

The Review of International Organizations, 2021, vol. 16, issue 2, No 5, 377-401

Abstract: Abstract During the global financial crisis, the Federal Reserve issued billions of dollars in liquidity swap agreements with foreign central banks, serving as a global lender of last resorts. Most studies of this event have analyzed the distribution of these swap lines using materially rational frameworks, which is logical under normal lending conditions. However, this approach does not account for the extensive evidence on social influences over decisions made under uncertainty. Meeting minutes from the Federal Reserve exhibit significant flexibility in recipient selection, and the content of these discussions suggest that social dynamics were important in members’ decision-making. This paper tests the effect of social similarity between foreign central banks and the Federal Reserve on the likelihood of receiving a swap line during the crisis. I introduce new measures of social similarity among central banks with data on employees’ professional ties and public speeches in the years preceding the global financial crisis. Statistical results show a positive, significant effect for social similarity on swap line receipt, even when tested alongside material predictors, and this social rationality appears to have been a deciding feature in some cases of swap distribution. I conclude with implications for future crises, and potential regulatory consequences.

Keywords: Currency swap; Social homophily; Central banks; Financial crisis; Network analysis (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://link.springer.com/10.1007/s11558-020-09378-x Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:revint:v:16:y:2021:i:2:d:10.1007_s11558-020-09378-x

Ordering information: This journal article can be ordered from
http://www.springer. ... iology/journal/11558

DOI: 10.1007/s11558-020-09378-x

Access Statistics for this article

The Review of International Organizations is currently edited by A. Dreher

More articles in The Review of International Organizations from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().