Currency Swap Agreements and Financial Crises in Small Open Economies

Akihiko Ikeda ()
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Akihiko Ikeda: Department of Economics, Kyoto University of Advanced Science

No 1033, KIER Working Papers from Kyoto University, Institute of Economic Research

Abstract: This paper studies the effects of an international currency swap agreement, or an exchange of hard currencies between countries, on the probability of financial crises. The analysis is based on a small open economy model with a financial constraint. A currency swap is described as a mutual provision of collateral goods between two countries. The results show that there are cases where a currency swap agreement can lower the probability of financial crises. Whether it can benefit both member countries depends on their difference in the size or probability of recessions, as well as the amount of collateral goods exchanged. Contracts of currency swaps should be designed in consideration of these factors.

Keywords: Emerging economy; Financial crisis; Currency swap (search for similar items in EconPapers)
JEL-codes: E32 F41 F44 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2020-05
New Economics Papers: this item is included in nep-mac, nep-mon and nep-opm
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