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The liquidity consequences of the euro area sovereign debt crisis

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  • William A Allen
  • Richhild Moessner
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    Abstract

    We examine the liquidity effects of the euro area sovereign debt crisis, including its effects on euro area banks as a group, on intra-euro area financial flows, on the supply of and demand for collateral, and on international liquidity. The lending capacity of the euro area banking system has been much weakened, despite the remarkable growth of the operations of the Eurosystem, including its greatly increased lending, its intermediation between national central banks in surplus and deficit countries and its collateral policy. The euro crisis has also created international liquidity stresses. We find that central bank swap lines have only had limited effectiveness in alleviating the stresses, probably owing to some stigma being attached to their use.

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    Bibliographic Info

    Paper provided by Bank for International Settlements in its series BIS Working Papers with number 390.

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    Length: 39 pages
    Date of creation: Nov 2012
    Date of revision:
    Handle: RePEc:bis:biswps:390

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    Keywords: Financial crisis; liquidity; foreign exchange swaps; central bank swap lines;

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    References

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    1. Sinn, Hans-Werner & Wollmershäuser, Timo, 2012. "Target loans, current account balances and capital flows: The ECB’s rescue facility," Munich Reprints in Economics, University of Munich, Department of Economics 19556, University of Munich, Department of Economics.
    2. Moessner, Richhild & Allen, William, 2012. "International liquidity provision and currency-specific liquidity shortages," Journal of Financial Transformation, Capco Institute, Capco Institute, vol. 34, pages 31-41.
    3. Naohiko Baba & Robert N McCauley & Srichander Ramaswamy, 2009. "US dollar money market funds and non-US banks," BIS Quarterly Review, Bank for International Settlements, March.
    4. Patrick McGuire & Goetz von Peter, 2009. "The US dollar shortage in global banking," BIS Quarterly Review, Bank for International Settlements, March.
    5. William A. Allen & Dr Richhild Moessner, 2011. "The International Liquidity Crisis of 2008–2009," World Economics, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, World Economics, Economic & Financial Publishing, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 12(2), pages 183-198, April.
    6. Naohiko Baba & Frank Packer, 2009. "From turmoil to crisis: dislocations in the FX swap market before and after the failure of Lehman Brothers," BIS Working Papers 285, Bank for International Settlements.
    7. Baba, Naohiko & Packer, Frank, 2009. "From turmoil to crisis: Dislocations in the FX swap market before and after the failure of Lehman Brothers," Journal of International Money and Finance, Elsevier, Elsevier, vol. 28(8), pages 1350-1374, December.
    8. Michael Ehrmann & Marcel Fratzscher, 2007. "Communication by Central Bank Committee Members: Different Strategies, Same Effectiveness?," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 39(2-3), pages 509-541, 03.
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    Cited by:
    1. Moessner, Richhild & Allen, William A., 2013. "Central bank swap line effectiveness during the euro area sovereign debt crisis," Journal of International Money and Finance, Elsevier, Elsevier, vol. 35(C), pages 167-178.

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