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

Fujiki Hiroshi | Zendy

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

Author(s) -

Fujiki Hiroshi

Publication year - 2013

Publication title -

the japanese economic review

Language(s) - English

Resource type - Journals

SCImago Journal Rank - 0.205

H-Index - 28

eISSN - 1468-5876

pISSN - 1352-4739

DOI - 10.1111/jere.12015

Subject(s) - market liquidity , currency , swap (finance) , collateral , moral hazard , economics , economic shortage , monetary economics , foreign exchange swap , liquidity crisis , sterilization (economics) , business , financial system , finance , devaluation , foreign exchange risk , microeconomics , incentive , linguistics , philosophy , government (linguistics)

During the recent global financial crisis, certain central banks introduced two innovative cross‐border operations to deal with the problems of foreign currency liquidity shortages: domestic liquidity operations using cross‐border collateral and operations that supply foreign currency among central banks based on standing swap lines. We show theoretically that central banks improve the efficiency of equilibrium under foreign currency liquidity shortages using these two innovative temporary policy measures.

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