UCL Discovery
UCL home » Library Services » Electronic resources » UCL Discovery

Central Bank Swap Lines: Evidence on the Effects of the Lender of Last Resort

Bahaj, S; Reis, R; (2021) Central Bank Swap Lines: Evidence on the Effects of the Lender of Last Resort. The Review of Economic Studies , Article dab074. 10.1093/restud/rdab074. (In press). Green open access

[thumbnail of Bahaj_rdab074.pdf]
Preview
Text
Bahaj_rdab074.pdf

Download (3MB) | Preview

Abstract

Theory predicts that central-bank lending programs put ceilings on private domestic lending rates, reduce ex post financing risk, and encourage ex ante investment. This article shows that with global banks and integrated financial markets, but domestic central banks, then lending of last resort can be achieved using swap lines. Through them, a source central bank provides source-currency credit to recipient-country banks using the recipient central bank as the monitor and as the bearer of the credit risk. In theory, the swap lines should put a ceiling on deviations from covered interest parity, lower average ex post bank borrowing costs, and increase ex ante inflows from recipient-country banks into privately issued assets denominated in the source-country’s currency. Empirically, these three predictions are tested using variation in the terms of the swap line over time, variation in the central banks that have access to the swap line, variation in the days of the week in which the swap line is open, variation in the exposure of different securities to foreign investment, and variation in banks’ exposure to dollar funding risk. The evidence suggests that the international lender of last resort is very effective.

Type: Article
Title: Central Bank Swap Lines: Evidence on the Effects of the Lender of Last Resort
Open access status: An open access version is available from UCL Discovery
DOI: 10.1093/restud/rdab074
Publisher version: https://doi.org/10.1093/restud/rdab074
Language: English
Additional information: © The Author(s) 2021. Published by Oxford University Press on behalf of The Review of Economic Studies Limited. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (https://creativecommons.org/licenses/by/4.0/), which permits unrestricted reuse, distribution, and reproduction in any medium, provided the original work is properly cited. For commercial re-use, please contactjournals.permissions@oup.com
Keywords: Liquidity facilities, Currency basis, Bond portfolio flows.
UCL classification: UCL
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > UCL School of Management
URI: https://discovery.ucl.ac.uk/id/eprint/10134784
Downloads since deposit
52Downloads
Download activity - last month
Download activity - last 12 months
Downloads by country - last 12 months

Archive Staff Only

View Item View Item