1932

Abstract

Liquidity lines between central banks are a key part of the international financial safety net. In this review article, we lay out some of the economic questions that they pose. Research has provided answers to some of these questions, but many more require further research.

Loading

Article metrics loading...

/content/journals/10.1146/annurev-financial-111620-022146
2022-11-01
2024-06-22
Loading full text...

Full text loading...

/deliver/fulltext/financial/14/1/annurev-financial-111620-022146.html?itemId=/content/journals/10.1146/annurev-financial-111620-022146&mimeType=html&fmt=ahah

Literature Cited

  1. Aizenman J, Ito H, Pasricha GK. 2021. Central bank swap arrangements in the COVID-19 crisis. NBER Work. Pap. 28585
    [Google Scholar]
  2. Akram QF, Rime D, Sarno L. 2008. Arbitrage in the foreign exchange market: turning on the microscope. J. Int. Econ. 76:2237–53
    [Google Scholar]
  3. Albrizio S, Kataryniuk I, Molina L. 2021. ECB euro liquidity lines. Work. Pap. 2125, Banco de España, Madrid
    [Google Scholar]
  4. Aldasoro I, Ehlers T, Eren E. 2019. Global banks, dollar funding, and regulation. Tech. Rep. 708, Bank Int. Settl. Basel, Switz:.
    [Google Scholar]
  5. Aldasoro I, Eren E, Huang W. 2021. Dollar funding of non-US banks through COVID-19. BIS Q. Rev. March:31–40
    [Google Scholar]
  6. Andersen L, Duffie D, Song Y 2019. Funding value adjustments. J. Finance 74:1145–92
    [Google Scholar]
  7. Anderson A, Du W, Schlusche B. 2021. Arbitrage capital of global banks NBER Work. Pap. 28658
    [Google Scholar]
  8. Andries AM, Fischer AM, Yesin P. 2017. The asymmetric effect of international swap lines on banks in emerging markets. J. Bank. Finance 75:215–34
    [Google Scholar]
  9. Avdjiev S, Du W, Koch C, Shin HS. 2019. The dollar, bank leverage and the deviation from covered interest parity. Am. Econ. Rev. Insights 1:2193–208
    [Google Scholar]
  10. Baba N, Packer F. 2009. Interpreting deviations from covered interest parity during the financial market turmoil of 2007–08. J. Bank. Finance 33:111953–62
    [Google Scholar]
  11. Baba N, Shim I. 2010. Policy responses to dislocations in the FX swap market: the experience of Korea. BIS Q. Rev. June:29–39
    [Google Scholar]
  12. Bahaj S, Reis R 2020a. Central bank swap lines during the Covid-19 pandemic. Covid Econ. 2:1–12
    [Google Scholar]
  13. Bahaj S, Reis R 2020b. Jumpstarting an international currency. Discuss. Pap. 14793, Cent. Econ. Policy Res. London:
    [Google Scholar]
  14. Bahaj S, Reis R. 2022a. Central bank swap lines: evidence on the effects of the lender of last resort. Rev. Econ. Stud. 89:4)1654–93
    [Google Scholar]
  15. Bahaj S, Reis R 2022b. The workings of liquidity lines between central banks. The Resource Handbook of Financial Markets, ed. RS Gurkanyak, JH Wright Cheltenham, UK: Edward Elgar Pub. Forthcoming
    [Google Scholar]
  16. Bevilacqua M, Brandl-Cheng L, Danielsson J, Ergun L, Uthemann A, Zigrand JP. 2021. The calming of short-term market fears and its long-term consequences: the central banks' dilemma SSRN Work. Pap. 3774218
    [Google Scholar]
  17. Bianchi J, Bigio S, Engel C. 2021. Scrambling for dollars: international liquidity, banks and exchange rates NBER Work. Pap. 29457
    [Google Scholar]
  18. Bocola L, Lorenzoni G. 2020. Financial crises, dollarization, and lending of last resort in open economies. Am. Econ. Rev. 110:82524–57
    [Google Scholar]
  19. Boissay F, Collard F, Smets F. 2016. Booms and banking crises. J. Political Econ. 124:2489–538
    [Google Scholar]
  20. Bruno V, Shin HS. 2015. Cross-border banking and global liquidity. Rev. Econ. Stud. 82:2535–64
    [Google Scholar]
  21. Caballero RJ, Farhi E, Gourinchas PO. 2008. An equilibrium model of “global imbalances” and low interest rates. Am. Econ. Rev. 98:1358–93
    [Google Scholar]
  22. Cetorelli N, Goldberg LS. 2012. Banking globalization and monetary transmission. J. Finance 67:51811–43
    [Google Scholar]
  23. Chahrour R, Valchev R. 2022. Trade finance and the durability of the dollar. Rev. Econ. Stud. 89:4)1873–910
    [Google Scholar]
  24. Coppola A, Maggiori M, Neiman B, Schreger J. 2021. Redrawing the map of global capital flows: the role of cross-border financing and tax haven. Q. J. Econ. 136:31499–556
    [Google Scholar]
  25. Corsetti G, Guimaraes B, Roubini N. 2006. International lending of last resort and moral hazard: a model of IMF's catalytic finance. J. Monet. Econ. 53:3441–71
    [Google Scholar]
  26. Diamond DW, Rajan RG. 2012. Illiquid banks, financial stability, and interest rate policy. J. Political Econ. 120:3552–91
    [Google Scholar]
  27. Du W, Tepper A, Verdelhan A. 2018. Deviations from covered interest rate parity. J. Finance 73:3915–57
    [Google Scholar]
  28. Duffie D 2020. Still the world's safe haven? Redesigning the U.S. treasury market after the COVID-19 crisis. Work. Pap. 62, Hutchins Cent., Brookings Inst. Washington, DC:
    [Google Scholar]
  29. Eguren-Martin F, Busch MO, Reinhardt D. 2019. Global banks and synthetic funding: the benefits of foreign relatives. Staff Work. Pap. 762, Bank Engl. London:
  30. Eichengreen B. 1996. Golden Fetters: The Gold Standard and the Great Depression, 1919–1939 Oxford, UK: Oxford Univ. Press
    [Google Scholar]
  31. Eren E, Malamud S. 2022. Dominant currency debt. J. Financ. Econ. 144:2571–89
    [Google Scholar]
  32. Eren E, Schrimpf A, Sushko V. 2020. US dollar funding markets during the COVID-19 crisis—the international dimension. Bank Int. Settl. (BIS) Bull. 15, BIS, Basel Switz:.
    [Google Scholar]
  33. Farhi E, Tirole J. 2012. Collective moral hazard, maturity mismatch, and systemic bailouts. Am. Econ. Rev. 102:160–93
    [Google Scholar]
  34. Farhi E, Werning I. 2016. A theory of macroprudential policies in the presence of nominal rigidities. Econometrica 84:51645–704
    [Google Scholar]
  35. FOMC (Fed. Open Mark. Comm.) 2008. Transcript of the Federal Open Market Committee Meeting on October 29–29, 2008. Fed. Reserve Board Gov. Washington, DC: https://www.federalreserve.gov/monetarypolicy/files/FOMC20081029meeting.pdf
    [Google Scholar]
  36. Friedman M, Schwartz A. 1971. A Monetary History of the United States, 1867–1960. NBER Publ. Ser. Princeton, NJ: Princeton Univ. Press
    [Google Scholar]
  37. Goldberg LS, Kennedy C, Miu J. 2011. Central bank dollar swap lines and overseas dollar funding costs. Econ. Policy Rev. 17:3–20
    [Google Scholar]
  38. Gopinath G. 2015. The international price system Paper presented at the Jackson Hole Economic Policy Symposium on Inflation Dynamics and Monetary Policy, Federal Reserve Bank of Kansas City Jackson Hole, WY:
    [Google Scholar]
  39. Gopinath G, Boz E, Casas C, Díez FJ, Gourinchas PO, Plagborg-Møller M. 2020. Dominant currency paradigm. Am. Econ. Rev. 110:3677–719
    [Google Scholar]
  40. Gopinath G, Itskhoki O, Rigobon R. 2010. Currency choice and exchange rate pass-through. Am. Econ. Rev. 100:1304–36
    [Google Scholar]
  41. Gopinath G, Stein JC. 2020. Banking, trade, and the making of a dominant currency. Q. J. Econ. 136:2783–830
    [Google Scholar]
  42. Gourinchas P-O, Rey H, Sauzet M. 2019. The international monetary and financial system. Annu. Rev. Econ. 11:859–93
    [Google Scholar]
  43. Hassan TA. 2013. Country size, currency unions, and international asset returns. J. Finance 68:62269–308
    [Google Scholar]
  44. Holmstrom B, Tirole J. 1997. Financial intermediation, loanable funds, and the real sector. Q. J. Econ. 112:3663–91
    [Google Scholar]
  45. Ilzetzki E, Reinhart CM, Rogoff KS. 2019. Exchange arrangements entering the twenty-first century: Which anchor will hold?. Q. J. Econ. 134:2599–646
    [Google Scholar]
  46. Ivashina V, Scharfstein DS, Stein JC. 2015. Dollar funding and the lending behavior of global banks. Q. J. Econ. 130:31241–81
    [Google Scholar]
  47. Jiang Z, Krishnamurthy A, Lustig H. 2020. Dollar safety and the global financial cycle NBER Work. Pap. 27682
    [Google Scholar]
  48. Korinek A, Simsek A. 2016. Liquidity trap and excessive leverage. Am. Econ. Rev. 106:3699–738
    [Google Scholar]
  49. Krugman P. 1984. The international role of the dollar: theory and prospect. Exchange Rate Theory and Practice JFO Bilson, RC Marsten 261–78 Chicago: Univ. Chicago Press
    [Google Scholar]
  50. Lorenzoni G. 2008. Inefficient credit booms. Rev. Econ. Stud. 75:3809–33
    [Google Scholar]
  51. McCauley RN, Schenk CR. 2020. Central bank swaps then and now: swaps and dollar liquidity in the 1960s. Work. Pap. 851, Bank Int. Settl. Basel, Switz:.
    [Google Scholar]
  52. McDowell D. 2019. The (ineffective) financial statecraft of China's bilateral swap agreements. Dev. Change 50:1122–43
    [Google Scholar]
  53. Menand L. 2021. The Federal Reserve and the 2020 economic and financial crisis Law Work. Pap. 518/2020, Eur. Corp. Gov. Inst. Brussels:
    [Google Scholar]
  54. Moessner R, Allen WA 2013. Central bank swap line effectiveness during the euro area sovereign debt crisis. J. Int. Money Finance 35:167–78
    [Google Scholar]
  55. Mukhin D. 2022. An equilibrium model of the international price system. Am. Econ. Rev. 112:2650–88
    [Google Scholar]
  56. Obstfeld M, Shambaugh JC, Taylor AM. 2009. Financial instability, reserves, and central bank swap lines in the panic of 2008. Am. Econ. Rev. 99:2480–86
    [Google Scholar]
  57. Perks M, Rao Y, Shin J, Tokuoka K. 2021. Evolution of bilateral swap lines. Work. Pap. 2021/210, Int. Monet. Fund Washington, DC:
    [Google Scholar]
  58. Pozsar Z. 2020. Global money dispatch. Tech. Rep., Nov. 10 Credit Suisse Econ. Zurich:
    [Google Scholar]
  59. Reis R. 2019. A solution to sudden stops. Finance Dev. 56:242–43
    [Google Scholar]
  60. Rey H. 2001. International trade and currency exchange. Rev. Econ. Stud. 68:2443–64
    [Google Scholar]
  61. Richardson G, Troost W. 2009. Monetary intervention mitigated banking panics during the Great Depression: quasi-experimental evidence from a Federal Reserve district border, 1929–1933. J. Political Econ. 117:61031–73
    [Google Scholar]
  62. Salomao J, Varela L. 2022. Exchange rate exposure and firm dynamics. Rev. Econ. Stud. 89:1481–514
    [Google Scholar]
  63. Schmidt L, Timmermann A, Wermers R. 2016. Runs on money market mutual funds. Am. Econ. Rev. 106:92625–57
    [Google Scholar]
/content/journals/10.1146/annurev-financial-111620-022146
Loading
/content/journals/10.1146/annurev-financial-111620-022146
Loading

Data & Media loading...

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error