From Lombard Street to Avenida Paulista : Foreign Exchange Liquidity Easing in Brazil in Response to the Global Shock of 2008–09

Author/Editor:

Mark R. Stone ; W. Christopher Walker ; Yosuke Yasui

Publication Date:

November 1, 2009

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

The provision of foreign exchange liquidity by emerging market central banks during the global shock of 2008-09 departs from the domestic liquidity lender of last resort role described by Bagehot in his classic "Lombard Street." This paper documents and analyzes the foreign exchange liquidity providing measures of the Banco Central do Brasil (BCB) in response to varied market stresses. These measures appear to have reduced the relative onshore cost of dollar liquidity on impact and seemed to stabilize market expectations of exchange rate volatility. The results suggest that foreign exchange liquidity easing operations may become a standard central bank tool.

Series:

Working Paper No. 09/259

Subject:

Brazil Capital markets Central bank policy Currency swaps Domestic liquidity Emerging markets Exchange rate policy Financial crisis Foreign exchange operations Futures Global Financial Crisis 2008-2009 Liquidity management

English

Publication Date:

November 1, 2009

ISBN/ISSN:

9781451874051/1018-5941

Stock No:

WPIEA2009259

Format:

Paper

Pages:

35

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