Effectiveness of Central Bank Swap Lines in Alleviating the Mispricing of FX Swaps at the Start of the Covid-19 Pandemic

28 Pages Posted: 15 Nov 2022

See all articles by Patty Duijm

Patty Duijm

De Nederlandsche Bank

Kai Schellekens

De Nederlandsche Bank; Tilburg University

Date Written: October 27, 2022

Abstract

At the start of the COVID-19 pandemic the increased market volatility and risk aversion led to a deterioration of U.S. Dollar funding conditions in the Euro Area. The swap line interventions by the ECB and Federal Reserve on March 15, 2020 aimed to alleviate the mispricing of EUR/USD FX swaps. We find that these swap line interventions were effective since they alleviated part of the mispricing. The announcement effect of the interventions is however limited; the impact of the swap line interventions is larger and more significant closer to the implementation date. This study provides insight into the effectiveness of central bank interventions in the FX swap market during turbulent periods.

Keywords: Central Bank Policy, FX Swaps, Financial Markets, Covid-19

JEL Classification: E58, G2, G15, H12

Suggested Citation

Duijm, Patty and Schellekens, Kai, Effectiveness of Central Bank Swap Lines in Alleviating the Mispricing of FX Swaps at the Start of the Covid-19 Pandemic (October 27, 2022). De Nederlandsche Bank Working Paper No. 752, Available at SSRN: https://ssrn.com/abstract=4262764 or http://dx.doi.org/10.2139/ssrn.4262764

Patty Duijm

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Kai Schellekens (Contact Author)

De Nederlandsche Bank ( email )

PO Box 98
1000 AB Amsterdam
Amsterdam, 1000 AB
Netherlands

Tilburg University

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
51
Abstract Views
274
Rank
693,765
PlumX Metrics