Money Market Disconnect

Benedikt Ballensiefen, Angelo Ranaldo and Hannah Winterberg
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Benedikt Ballensiefen: University of St. Gallen - School of Finance
Hannah Winterberg: University of St. Gallen

No 23-12, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: A repurchase agreement (repo) is a source of cash and collateral. We document that the money market is more segmented when the collateral motive prevails. Two crucial aspects of the central bank framework lead to this disconnect: banks’ access to the central bank's deposit facility and assets’ eligibility for Quantitative Easing (QE). We show that repo rates lent by banks with access to the deposit facility and secured by QE eligible assets are more collateral-driven and disconnected from funding-based money market rates. Our results are relevant for different monetary policies and have suggestive implications for the monetary policy pass-through.

Keywords: Money Market; Segmentation; Deposit Facility; QE; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E40 E43 E50 E52 E58 G18 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2023-02
New Economics Papers: this item is included in nep-ban, nep-cba and nep-mon
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Citations: View citations in EconPapers (4)

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Journal Article: Money Market Disconnect (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2312

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