EconPapers    
Economics at your fingertips  
 

Central Bank Swap Arrangements in the COVID-19 Crisis

Joshua Aizenman (), Hiro Ito () and Gurnain Pasricha ()

No 28585, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Facing acute strains in the offshore dollar funding markets during the COVID-19 crisis, the Federal Reserve (Fed) implemented measures to provide US dollar liquidity by reinforcing swap arrangements with five major central banks, reactivating them with nine other central banks and establishing a financial institutions and monetary authorities (FIMA) repo facility in March 2020. This paper assesses motivations for the Fed liquidity lines, and the effects and spillovers of US dollar auctions by central banks, for about 50 economies. We find that the access to the liquidity arrangements is driven by the recipient economies’ close trade ties with the US. Higher US bank and trade exposure to an economy increases its access to dollar liquidity lines through the swap arrangements and the new repo facility. Access to dollar liquidity also reflects global trade exposure. We investigate the announcement effects of the liquidity arrangements on several key financial variables, and find that announcements of expansion of Fed liquidity facilities led to appreciation of partner currencies against the US dollar, improved CDS spreads, and lowered the long-term interest rates of the recipient economies. Further, US dollar auctions by economies’ own central banks lead to temporary appreciation of their currencies, but dollar auctions by major central banks (BoE, ECB, BoJ and SNB) have persistent spillovers – they led to appreciation of other non-dollar currencies. These responses do not differ whether the economies have larger or smaller financial or trade ties with the US.

JEL-codes: F15 F21 F32 F36 G15 (search for similar items in EconPapers)
Date: 2021-03
New Economics Papers: this item is included in nep-cba and nep-mon
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://www.nber.org/papers/w28585.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

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:nbr:nberwo:28585

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w28585
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2021-06-18
Handle: RePEc:nbr:nberwo:28585