Annual Conference

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International Macroeconomics, Money & Banking, Senior Fellows/Fellows

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May 2023

Reserves were not so ample after all

Darrell DUFFIE, Adam COPELAND, Yilin (David) YANG
The Federal Reserve’s “balance-sheet normalization,” which reduced aggregate reserves between 2017 and September 2019, increased repo rate distortions, the severity of rate spikes, and intraday payment timing stresses, culminating with a significant disruption in Treasury repo markets in mid-S...
Keywords: Repo rates, reserves, Treasuries, payments, central-bank balance sheet
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Annual Conference

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International Macroeconomics, Money & Banking

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May 2023

Central Bank Swap Lines: Micro-Level Evidence

Gerardo FERRARA, Philippe MUELLER, Ganesh VISWANATH-NATRAJ, Junxuan WANG
In this paper we investigate the price, volatility and micro-level effects of central bank swap lines during the 2020 pandemic. Following swap line auctions, these interventions reduced the level and volatility of covered interest rate parity violations. We combine dealer-level dollar auctions by th...
Keywords: swap lines, monetary policy, foreign exchange swaps, covered interest rate parity, central banking
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Annual Conference

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International Macroeconomics, Money & Banking

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May 2023

Jumpstarting an International Currency

Ricardo REIS, Saleem BAHAJ
While the USD dominates cross-border transactions today, a few other currencies are also used internationally. This paper shows that central bank policies that reduce the volatility of borrowing costs for foreign firms in domestic currency can trigger a jump-start of the currency’s international s...
Keywords: Currency Choice, RMB internationalization, Liquidity Lines, Invoicing Currency
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Annual Conference

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International Macroeconomics, Money & Banking, Senior Fellows/Fellows

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May 2023

Dollar Reserves and U.S. Yields: Identifying the Price Impact of Official Flows

Rashad AHMED, Alessandro REBUCCI
This paper shows that the price impact of foreign official (FO) purchases or sales of U.S. Treasuries (USTs) is about twice as large as previously reported in the literature once critical sources of endogeneity are addressed. We also show that prevailing estimates of this price impact suffer from om...
Keywords: Foreign official flows, Global savings glut, Identification via heteroskedasticity, Interest rates conundrum, International reserves, U.S. Dollar, VARs
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Annual Conference

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International Macroeconomics, Money & Banking

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May 2023

Currency Risk Under Capital Controls

Xiang FANG, Sining LIU, Yang LIU
Currencies of emerging markets with stricter capital controls have lower average returns. These return spreads cannot be explained by traditional currency risk factors. The effect of capital controls is concentrated in debtor countries and is not present in currencies of advanced economies. The high...
Keywords: Capital control, Currency risk, Risk premia, Sudden stop, Emerging markets
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