Selective Swap Arrangements and the Global Financial Crisis: Analysis and Interpretation

Joshua Aizenman, Gurnain Kaur Pasricha

NBER Working Paper No. 14821
Issued in March 2009
NBER Program(s):   IFM   ITI

The onset of the US credit crisis in 2008, and its rapid globalization induced the FED to extend unprecedented swap-lines of 30 billion dollars to four emerging markets, and the proliferation of other cross-countries selective swap arrangements. This paper explores the logic for these arrangements, focusing on the degree to which financial and trade linkages, financial openness and credit risk history account for discerning the formation of swap arrangements to EMs. We also study the impact of the formation of these credit lines on the exchange rate and the financial spreads of the relevant countries. We find that exposure of US banks to EMs is the most important selection criterion for explaining the "selected four" swap-lines. This result is consistent with the outlined model, where we show that in circumstances of unanticipated deleveraging, emergency swap-lines may prevent or mitigate costly liquidation today, allowing investment projects to reach maturity and providing positive option value to both the source and the recipient countries. The FED swap-lines had relatively large short-run impact on the exchange rates of the selected EMs, but much smaller effect on the spreads (measured relative to that of other EMs that were not the recipients of swap-lines). Specifically, non-swap countries saw an average depreciation of 0.15% on the day after swap announcement, but swap countries saw their exchange rate appreciate on average, by about 4%. Yet, all the swap countries saw their exchange rate subsequently depreciate to a level lower than pre-swap rate, calling into question the long-run impact of the arrangements.

download in pdf format
   (186 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w14821

Published: Aizenman, Joshua & Pasricha, Gurnain Kaur, 2010. "Selective swap arrangements and the global financial crisis: Analysis and interpretation," International Review of Economics & Finance, Elsevier, vol. 19(3), pages 353-365, June. citation courtesy of

Users who downloaded this paper also downloaded these:
Malmendier and Schmidt w18543 You Owe Me
Goldberg, Kennedy, and Miu w15763 Central Bank Dollar Swap Lines and Overseas Dollar Funding Costs
Aizenman, Jinjarak, and Park w15804 International reserves and swap lines: substitutes or complements?
Obstfeld, Shambaugh, and Taylor w14826 Financial Instability, Reserves, and Central Bank Swap Lines in the Panic of 2008
Rose and Spiegel w17359 Dollar Illiquidity and Central Bank Swap Arrangements During the Global Financial Crisis
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us