Central bank swap line effectiveness during the euro area sovereign debt crisis

Abstract

The Federal Reserve re-established a swap line with the European Central Bank in response to the international liquidity stresses created by the euro area sovereign debt crisis. We examine the swap line's effectiveness in addressing these stresses in 2010–11. We find that announcements about the swap line had a significant effect in reducing euro-dollar FX swap spreads during the 2010–11 crisis, but that the swap line only had limited effectiveness in alleviating the stresses, probably owing to some stigma being attached to its use.