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Selective swap arrangements and the global financial crisis: Analysis and interpretation

  • Aizenman, Joshua
  • Pasricha, Gurnain Kaur

This paper explores the logic inducing the FED to extend unprecedented swap-lines to four emerging markets in September 2008. Exposure of US banks to EMs turned out to be the most important selection criterion for explaining the "selected four" swap-lines. This result is consistent with the outlined model. The FED swap-lines had relatively large short-run impact on the exchange rates of the selected EMs, but much smaller effect on the spreads. Yet, all the swap countries saw their exchange rate subsequently depreciate to a level lower than pre-swap rate, calling into question the long-run impact of the swap arrangements.

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Article provided by Elsevier in its journal International Review of Economics & Finance.

Volume (Year): 19 (2010)
Issue (Month): 3 (June)
Pages: 353-365

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Handle: RePEc:eee:reveco:v:19:y:2010:i:3:p:353-365
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620165

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  1. Holmstrom, B & Tirole, J, 1996. "Private and Public Supply of Liquidity," Working papers 96-21, Massachusetts Institute of Technology (MIT), Department of Economics.
  2. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "Is the 2007 U.S. Sub-Prime Financial Crisis So Different? An International Historical Comparison," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(3), pages 291-299, September.
  3. Taylor, Mark P. & Sarno, Lucio, 1998. "The behavior of real exchange rates during the post-Bretton Woods period," Journal of International Economics, Elsevier, vol. 46(2), pages 281-312, December.
  4. Joshua Aizenman & Jaewoo Lee, 2005. "International reserves: precautionary versus mercantilist views, theory and evidence," Proceedings, Federal Reserve Bank of San Francisco.
  5. Nyblom, Jukka & Harvey, Andrew, 1999. "Tests of Common Stochastic Trends," Cambridge Working Papers in Economics 9902, Faculty of Economics, University of Cambridge.
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  7. Sebastian Edwards, 2007. "Capital Controls, Capital Flow Contractions, and Macroeconomic Vulnerability," NBER Working Papers 12852, National Bureau of Economic Research, Inc.
  8. Al-Awad, Mouawiya & Grennes, Thomas J., 2002. "Real interest parity and transaction costs for the group of 10 countries," International Review of Economics & Finance, Elsevier, vol. 11(4), pages 363-372.
  9. Kaddour Hadri, 1999. "Testing For Stationarity In Heterogeneous Panel Data," Research Papers 1999_04, University of Liverpool Management School.
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  11. Bryant, John, 1980. "A model of reserves, bank runs, and deposit insurance," Journal of Banking & Finance, Elsevier, vol. 4(4), pages 335-344, December.
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