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Currency basis term structure, cross-border investment flow, and central bank currency swap agreement

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  • Koyama, Kentaro
  • Takeda, Sumihiro

Abstract

In this study, we analyze the impact of term structure changes of currency basis on cross-border sovereign bond investment flows and that of major central banks' USD funds-supplying operations. We find that changes in short-term USD/JPY basis with less than six-month terms led to a shift in the demand between Japanese government bonds and US Treasury bonds. Results also show that the funds-supplying operations reduced currency basis with less than three-month durations. The banks’ enhanced measures in March 2020 also further reduced the currency basis.

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  • Koyama, Kentaro & Takeda, Sumihiro, 2023. "Currency basis term structure, cross-border investment flow, and central bank currency swap agreement," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 470-482.
    • Handle: RePEc:eee:reveco:v:83:y:2023:i:c:p:470-482
    DOI: 10.1016/j.iref.2022.09.009
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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