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The impact of unconventional monetary policy on the market for collateral: The case of the French bond market

Sanvi Avouyi-Dovi and Julien Idier

Journal of Banking & Finance, 2012, vol. 36, issue 2, 428-438

Abstract: We consider the channel consisting in transferring the credit risk associated with refinancing operations between financial institutions to market participants. In particular, we analyze liquidity and volatility premia on the French government debt securities market, since these assets are used as collateral both in the open market operations of the ECB and on the interbank market. In our time-varying transition probability Markov-switching (TVTP-MS) model, we highlight the existence of two regimes. In one of them, which we refer to as the conventional regime, monetary policy neutrality is verified; in the other, which we dub the unconventional regime, monetary policy operations lead to volatility and liquidity premia on the collateral market. The existence of these conventional and unconventional regimes highlights some asymmetries in the conduct of monetary policy.

Keywords: Monetary policy; Collateral; Liquidity; Volatility; French bond market (search for similar items in EconPapers)
JEL-codes: G10 C22 C53 (search for similar items in EconPapers)
Date: 2012
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Working Paper: The impact of unconventional monetary policy on the market for collateral: The case of the French bond market (2012) Downloads
Working Paper: The impact of unconventional monetary policy on the market for collateral: The case of the French bond market (2011) Downloads
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