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

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  • Hiroshi Fujiki

    (Associate Director-General and Senior Monetary Affairs Department, Bank of Japan (E-mail: hiroshi.fujiki @boj.or.jp))

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.

Suggested Citation

  • Hiroshi Fujiki, 2010. "Policy Measures to Alleviate Foreign Currency Liquidity Shortages under Aggregate Risk with Moral Hazard," IMES Discussion Paper Series 10-E-04, Institute for Monetary and Economic Studies, Bank of Japan.
    • Handle: RePEc:ime:imedps:10-e-04
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    File URL: http://www.imes.boj.or.jp/research/papers/english/10-E-04.pdf
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    1. James T.E. Chapman & Antoine Martin, 2013. "Rediscounting under Aggregate Risk with Moral Hazard," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(4), pages 651-674, June.
    2. Fujiki, Hiroshi, 2014. "Institutional designs to alleviate liquidity shortages in a two-country model," Japan and the World Economy, Elsevier, vol. 31(C), pages 32-46.

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    More about this item

    Keywords

    Standing swap lines; Operations supplying US dollar funds outside the US; Cross-border collateral arrangements;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions

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