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 through swap arrangements with other central banks and establishing a repo facility for financial institutions and monetary authorities (FIMA) in March 2020. This paper assesses motivations for the Fed liquidity lines, and the effects and spillovers of US dollar auctions by central banks. We find that the access to the liquidity arrangements was driven by the recipient economies’ close financial and trade ties with the US. Access to dollar liquidity also reflected global trade exposure. We find that announcements of expansion of Fed liquidity facilities or of auctions using these facilities led to appreciation of partner currencies against the US dollar. and reduced deviations from covered interest parity (CIP). Dollar auctions by major central banks (BoE, ECB, BoJ and SNB) led to temporary appreciation of other currencies against the US dollar, reduced CIP deviations, and persistently reduced sovereign bond yields of other economies. However, dollar auctions done by other central banks with access to Fed facilities did not have a meaningful impact on key domestic financial variables . The impact of major central bank auctions does not differ by the economies’ financial or trade links with the US or their balance sheet currency exposure, i.e. the major central bank auctions benefitted even the more vulnerable economies.

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: View citations in EconPapers (10)

Published as Joshua Aizenman & Hiro Ito & Gurnain Kaur Pasricha, 2021. "Central Bank Swap Arrangements in the COVID-19 Crisis," Journal of International Money and Finance, .

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Journal Article: Central bank swap arrangements in the COVID-19 crisis (2022)
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