Quantitative easing, the repo market, and the term structure of interest rates

Ruggero Jappelli, Loriana Pelizzon and Marti G. Subrahmanyam

No 395, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

Abstract: We develop a quantity-driven general equilibrium model that integrates the term structure of interest rates with the repurchase agreements (repo) market to shed light on the combined effects of quantitative easing (QE) on the bond and money markets. We characterize in closed form the endogenous dynamic interaction between bond prices and repo rates, and show (i) that repo specialness dampens the impact of any given quantity of asset purchases due to QE on the slope of the term structure and (ii) that bond scarcity resulting from QE increases repo specialness, thus strengthening the local supply channel of QE.

Keywords: Term Structure of Interest Rates; Repo Specialness; Money Market; Quantitative Easing (search for similar items in EconPapers)
JEL-codes: E43 E52 G12 (search for similar items in EconPapers)
Date: 2023
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:395

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