Working Paper: NBER ID: w31901
Authors: Rohan Kekre; Moritz Lenel
Abstract: We study the effects of dollar swap lines using high frequency responses in asset prices around policy announcements. News about expanded dollar swap lines causes a reduction in liquidity premia, compression of deviations from covered interest parity (CIP), and depreciation of the dollar. Equity prices rise and the VIX falls, while the response of long-term government bond prices is mixed. The cross-section of high frequency responses implies that swap lines affect the dollar factor or the price of risk. Our findings are qualitatively consistent with models relating the supply of dollar liquidity to the broader economy.
Keywords: dollar swap lines; liquidity premia; covered interest parity; asset prices
JEL Codes: E44; F31; G15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| news about expanded dollar swap lines (F33) | reduction in liquidity premia (G19) |
| news about expanded dollar swap lines (F33) | depreciation of the dollar (F31) |
| news about expanded dollar swap lines (F33) | compression of CIP deviations (L15) |
| news about expanded dollar swap lines (F33) | rise in equity prices (G12) |
| news about expanded dollar swap lines (F33) | decrease in VIX (G14) |
| news about expanded dollar swap lines (F33) | mixed effects on long-term government bond prices (E43) |