Dollar Shortage, Central Bank Actions, and the Cross Currency Basis
Cross-currency basis is built as an equilibrium price in a market where funding abilities in different currencies are exchanged one against another. The basis level is determined in this market such that funding supply matches demand. Policy can be modeled in this context. We examine the example of the 2008 crisis, where European banks had a hard time rolling over their dollar ABS positions funding. As in our model, the euro-dollar basis widened with shortage of US dollars and narrowed after October 15 2008 when the ECB fully allotted (with the Fed's help) European banks' bids for US dollars.
Jean-Marc Bottazzi, Jaime Luque, and Mario Pascoa. 2015. "Dollar Shortage, Central Bank Actions, and the Cross Currency Basis" The SelectedWorks of Jaime Luque
Available at: http://works.bepress.com/luque/9
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