ECB Monetary Operations and the Interbank Repo Market

Peter Dunne, Michael Fleming and Andrey Zholos
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Andrey Zholos: Barclays Capital

No 09/RT/14, Research Technical Papers from Central Bank of Ireland

Abstract: We examine the relationship between monetary policy operations and interbank trading of funds using sovereign bonds as collateral. We first establish that, in the pre-crisis period, there are important but rather weak relations between these funding sources and that this relationship varies within maintenance periods and at the end of the year. Oficial funding conditions did not meaningfully constrain repo market activity in the 2003-05 period but, in the immediate pre-crisis period, rate increases led to a sharp contraction in repo activity. Focusing on the crisis period, we identify potentially benign substitution effects between official auctions and repo market activity but our empirical analysis shows that positive innovations in the cost of official funding, due to aggressive bidding, and a limited allotment response, encouraged increased use of the interbank repo market. The analysis informs a discussion of the merits of returning to variable rate operations.

Keywords: Repo; Funding; Liquidity; Monetary Policy; Reserve Management. (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E53 G12 G14 (search for similar items in EconPapers)
Date: 2014-08
New Economics Papers: this item is included in nep-fmk, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: ECB monetary operations and the interbank repo market (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:cbi:wpaper:09/rt/14

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