Effects of the Fed's enhanced swap line with the ECB on CIP deviations. Issue 10 (25th February 2021)

• Record Type: Journal Article
• Authors: Moessner, Richhild; Allen, William A.
• Is Part Of: Applied economics. Volume 53:Issue 10(2021)
• Page Start: 1178
• Page End: 1183
• Publication Date: 2021-02-25
• Subjects: Central bank swap lines -- CIP deviations -- foreign exchange swaps -- international liquidity; E52 -- E58.; Economics -- Periodicals; 330
• DOI: 10.1080/00036846.2020.1827137
• Languages: English
• ISSNs: 0003-6846

Abstract

ABSTRACT: In this paper we study the effects of the enhancement of the Fed's swap line with the ECB during the coronavirus epidemic on dollar cross-currency basis swap spreads against the euro, which had widened during the coronavirus crisis, reflecting greater deviations from covered interest parity (CIP). We find that the enhanced swap line contributed to making the three-month dollar cross-currency basis swap spreads against the euro less negative, i.e. narrowing the CIP deviations.