Policy Measures to Alleviate Foreign Currency Liquidity Shortages under Aggregate Risk with Moral Hazard

Preprint OPEN
Hiroshi Fujiki (2010)
  • Subject: Standing swap lines, Operations supplying US dollar funds outside the US, Cross-border collateral arrangements
    • jel: jel:F31 | jel:E58 | jel:F33

During the recent global financial crisis, some central banks introduced two innovative cross-border operations to deal with the problems of foreign currency liquidity shortages: domestic liquidity operations using cross-border collaterals and operations for supplying foreign currency based on standing swap lines among central banks. We show theoretically that central banks improve the efficiency of equilibrium under foreign currency liquidity shortages by those two innovative temporary policy measures.
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