The High Frequency Effects of Dollar Swap Lines

81 Pages Posted: 28 Nov 2023

See all articles by Rohan Kekre

Rohan Kekre

University of Chicago - Booth School of Business

Moritz Lenel

Princeton University - Bendheim Center for Finance

Date Written: November 27, 2023

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: E44, F31, liquidity premium, exchange rates, G15, dollar swap lines

JEL Classification: E44, F31, G15

Suggested Citation

Kekre, Rohan and Lenel, Moritz, The High Frequency Effects of Dollar Swap Lines (November 27, 2023). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2023-148, Available at SSRN: https://ssrn.com/abstract=4645744 or http://dx.doi.org/10.2139/ssrn.4645744

Rohan Kekre (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 South Woodlawn Avenue
Chicago, IL 60637
United States

Moritz Lenel

Princeton University - Bendheim Center for Finance ( email )

26 Prospect Avenue
Princeton, NJ 08540
United States

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