The High Frequency Effects of Dollar Swap Lines

We study the effects of dollar swap lines using high frequency responses in asset prices around policy announcements. News about expanded dollar swap lines causes a reduction in liquidity premia, compression of deviations from covered interest parity (CIP), and depreciation of the dollar. Equity prices rise and the VIX falls, while the response of long-term government bond prices is mixed. The cross-section of high frequency responses implies that swap lines affect the dollar factor or the price of risk. Our findings are qualitatively consistent with models relating the supply of dollar liquidity to the broader economy.