Understanding FX Liquidity

FX spot and swap market liquidity and the effects of window dressing∗

This paper assesses liquidity conditions in foreign exchange (FX) spot and derivatives markets using intra-day data against the background of FX dealers’ response to recent regulatory changes. Given that FX swap markets are by some measures even deeper that the spot market, an assessment of FX liquidity requires taking such instruments into account. We find that spot and swap market liquidity i...

shakes the FX tree ? Understanding currency dominance , dependence and dynamics

There is intense interest in understanding the stochastic and dynamical properties of the global Foreign Exchange (FX) market, whose daily transactions exceed 10 US dollars. This is a formidable task since the FX market is characterized by a web of fluctuating exchange rates, with subtle inter-dependencies which may change in time. In practice, traders talk of particular currencies being ‘in pl...

Prove : ∀ x Fx Solve : ∃ x Fx Compute : λx Fx 3

Understanding Benign Liquidity Traps: The Case of Japan

Japan has been in a benign liquidity trap since the 1990s. In a benign liquidity trap, interest rates approach zero and monetary policy is ineffective but output and employment perform decently. Such a pattern contradicts traditional macro theories. This paper introduces a monetary general equilibrium model that is compatible with Japan’s performance and resolves puzzles associated with liquidi...

Understanding Liquidity and Credit Risks in the Financial Crisis

This paper develops a structured dynamic factor model for the spreads between London Interbank O¤ered Rate (LIBOR) and overnight index swap (OIS) rates for a panel of banks. Our model involves latent factors which re‡ect liquidity and credit risk. Our empirical results show that surges in the short term LIBOR-OIS spreads during the 2007-2009 …nancial crisis were largely driven by liquidity risk...