publication . Preprint . Article . 2010

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

Hiroshi Fujiki;
Open Access
  • Published: 01 Mar 2010
Abstract
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.
Persistent Identifiers
Subjects
free text keywords: Standing swap lines, Operations supplying US dollar funds outside the US, Cross-border collateral arrangements, Economics and Econometrics, jel:E58, jel:F31, jel:F33, Business, Financial system, Reserve currency, Foreign exchange risk, Devaluation, Market liquidity, Liquidity crisis, Financial crisis, Currency, Swap (finance)
Related Organizations

Antoine, Martin, “Reconciling Bagehot and the Fed's Response to September 11,” Journal of Money, Credit and Banking 41 (2-3), 2009, pp. 397-415.

Baba, Naohiko and Frank Packer, “From Turmoil to Crisis: Dislocations in the FX Swap Market before and after the Failure of Lehman Brothers,” Journal of International Money and Finance 28, 2009, pp. 1350-1374. [OpenAIRE]

Castiglionesi, Fabio, Fabio Feriozzi and Guido Lorenzoni, “Financial Integration and Liquidity Crises,” mimeo, November 2009.

Chapman, James and Antoine Martin, “Rediscounting under Aggregate Risk with Moral Hazard,” Staff Report No. 296, Federal Reserve Bank of New York, 2007.

Chapman, James, Jonathan Chiu and Miguel Molico, “A Model of Tiered Settlement Networks,” Working Paper 2008-12, Bank of Canada, 2008.

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