Overnight RRP Operations as a Monetary Policy Tool: Some Design Considerations

Josh Frost, Lorie Logan, Antoine Martin, Patrick E. McCabe, Fabio M. Natalucci and Julie Remache
Additional contact information
Lorie Logan: https://www.dallasfed.org/fed/leadership/Logan.aspx
Patrick E. McCabe: https://www.federalreserve.gov/econres/patrick-e-mccabe.htm

No 2015-10, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We review recent changes in monetary policy that have led to development and testing of an overnight reverse repurchase agreement (ON RRP) facility, an innovative tool for implementing monetary policy during the normalization process. Making ON RRPs available to a broad set of investors, including nonbank institutions that are significant lenders in money markets, could complement the use of the interest on excess reserves (IOER) and help control short-term interest rates. We examine some potentially important secondary effects of an ON RRP facility, both positive and negative, including impacts on the structure of short-term funding markets and financial stability. We also investigate design features of an ON RRP facility that could mitigate secondary effects deemed undesirable. Finally, we discuss tradeoffs that policymakers may face in designing an ON RRP facility, as they seek to balance the objectives of setting an effective floor on money market rates during t he normalization process and limiting any adverse secondary effects.

Keywords: Federal Reserve Board and Federal Reserve System; monetary policy; interest on excess reserves; money market funds; overnight RRP; repo; reverse repos (search for similar items in EconPapers)
JEL-codes: E52 E58 G21 G23 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2015-02-19
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 (16)

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http://www.federalreserve.gov/econresdata/feds/2015/files/2015010pap.pdf Full text (application/pdf)
http://dx.doi.org/10.17016/FEDS.2015.010 http://dx.doi.org/10.17016/FEDS.2015.010 (application/pdf)

Related works:
Working Paper: Overnight RRP operations as a monetary policy tool: some design considerations (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2015-10

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