Central bank swap lines: micro-level evidence
Gerardo Ferrara (),
Philippe Mueller (),
Ganesh Viswanath-Natraj () and
Junxuan Wang ()
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Gerardo Ferrara: Bank of England, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH
Philippe Mueller: Warwick Business School
Ganesh Viswanath-Natraj: Warwick Business School
Junxuan Wang: Warwick Business School
No 977, Bank of England working papers from Bank of England
In this paper we investigate the price, volatility and micro-level effects of central bank swap lines during the 2020 pandemic. These policies lowered the ceiling on covered interest rate parity violations and reduced volatility following settlement of swap line auctions. We then combine dealer-level dollar repo auctions by the Bank of England with a trade repository that includes the universe of FX forward and swap contracts traded in the UK. We find evidence of a substitution channel: dealers that draw on swap lines reduce their demand for dollars at the forward leg in the FX market. We also find evidence that dealers that draw on swap lines increased their net supply of dollars to non-financial institutions, supporting the rationale for swap lines in providing cross-border liquidity to the real economy.
Keywords: Swap lines; monetary policy; foreign exchange swaps; covered interest rate parity; central banking (search for similar items in EconPapers)
JEL-codes: E44 F30 F31 F32 F41 G11 G12 G15 G18 G20 (search for similar items in EconPapers)
Pages: 56 pages
New Economics Papers: this item is included in nep-cba, nep-ifn, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0977
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