Monetary Policy Implementation and Private Repo Displacement: Evidence from the Overnight Reverse Repurchase Facility

Alyssa G. Anderson and John Kandrac
Additional contact information
Alyssa G. Anderson: https://www.federalreserve.gov/econres/alyssa-g-anderson.htm
John Kandrac: https://www.federalreserve.gov/econres/john-kandrac.htm

No 2016-096, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: In recent years, the scale and scope of major central banks' intervention in financial markets has expanded in unprecedented ways. In this paper, we demonstrate how monetary policy implementation that relies on such intervention in financial markets can displace private transactions. Specifically, we examine the experience with the Federal Reserve's newest policy tool, known as the overnight reverse repurchase (ONRRP) facility, to understand its effects on the repo market. Using exogenous variation in the parameters of the ONRRP facility, we show that participation in the ONRRP comes from substitution out of private repo. However, we also demonstrate that cash lenders, when investing in the ONRRP, do not cease trading with any of their dealer counterparties, highlighting the importance of lending relationships in the repo market. Lastly, using a confidential data set of repo transactions, we find that the presence of the Fed as a borrower in the repo market increases the bargaining power of cash lenders, who are able to command higher rates in their remaining private repo transactions.

Keywords: Repo; Money market mutual funds; Monetary policy; Federal Reserve (search for similar items in EconPapers)
JEL-codes: E52 E58 G11 G23 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2016-10-31
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.federalreserve.gov/econresdata/feds/2016/files/2016096pap.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2016-96

DOI: 10.17016/FEDS.2016.096

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().