Dislocations in FX Swap and Money Markets in Hong Kong and Policy Actions during the Financial Crisis of 2008
Hong Kong Monetary Authority Working Paper No. 17/2009
13 Pages Posted: 18 Dec 2009
Date Written: October 23, 2009
Abstract
When US dollar interbank markets malfunctioned during the global financial crisis of 2008, many non-US financial institutions relied heavily on FX swap markets for US dollar funds. This one-sided market induced a risk premium of the FX swap-implied US dollar rate across a range of funding currencies, i.e. a deviation from the covered interest parity (CIP) condition. The turbulence in the global interbank markets therefore spilled over to the FX swap markets, including that in Hong Kong. This paper analyses the effectiveness of the policy actions taken by the Hong Kong Monetary Authority and the government in responding to the dislocations and stress in the local interbank and FX swap markets. Our results show that the policy actions effectively ameliorated the FX swap market dislocations after the failure of Lehman Brothers, i.e. reducing the CIP deviations.
Keywords: FX swaps, Covered interest parity, Interbank stress, Exponential GARCH
JEL Classification: F31, G14, G15
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The US Dollar Shortage in Global Banking
By Patrick Mcguire, Goetz Von Peter, ...
-
Banking Globalization, Monetary Transmission, and the Lending Channel
-
The US Dollar Shortage in Global Banking and the International Policy Response
By Patrick Mcguire and Goetz Von Peter
-
Interpreting Deviations from Covered Interest Parity during the Financial Market Turmoil of 2007-08
By Naohiko Baba and Frank Packer
-
Interpreting Deviations from Covered Interest Parity During the Financial Market Turmoil of 2007-08
By Naohiko Baba and Frank Packer
-
US Dollar Money Market Funds and Non-US Banks
By Naohiko Baba, Robert N. Mccauley, ...
-
By Naohiko Baba and Frank Packer
-
Global Banks and International Shock Transmission: Evidence from the Crisis
-
Global Banks and International Shock Transmission: Evidence from the Crisis