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Central Bank Swap Arrangements in the Covid-19 Crisis


Time:9:00am - 10:30am, Apr. 23rd, 2021


Speaker:Joshua Aizenman

(University of Southern California)


Meeting ID:980 9640 9692




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.



Professor Joshua Aizenman joined the faculty at USC in 2013, where he serves as the Dockson Chair in Economics and International Relations. Professor Aizenman also serves as a Research Associate for the National Bureau of Economic Research, and co-editor of the Journal of International Money and Finance. Other affiliations have included teaching and research positions at UC Santa Cruz (served as a Presidential Chair of Economics), Dartmouth (served as the Champion Professor of International Economics), Hebrew University of Jerusalem, University of Chicago GSB, and University of Pennsylvania. Consulting relationships include the International Monetary Fund, the World Bank, the Inter-American Development Bank, the Asian Development Bank, and the Federal Reserve Bank of San Francisco. A common thread of his research has been applying a generalized cost benefit approach to international economics and economic development, recognizing political economy goals and constraints. His work aims at interpreting observed patterns, studying conditions under which policies may help or hinder the performance of the economy, and the role of institutions and regulations. His research covers a range of issues in the open economy, including commercial and financial policies, crises in emerging markets, foreign direct investment, capital controls, and exchange rate regimes. Professor Aizenman earned his doctor degree in Economics from the University of Chicago in 1981.