Money Market Disconnect

Benedikt Ballensiefen, Angelo Ranaldo, Hannah Winterberg and Ralph Koijen

The Review of Financial Studies, 2023, vol. 36, issue 10, 4158-4189

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 implicationsfor the monetary policy pass-through.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

JEL-codes: E40 E43 E50 E52 E58 G18 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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