The Scarcity Effect Of Quantitative Easing On Repo Rates Evidence From The Euro Area

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The Scarcity Effect of Quantitative Easing on Repo Rates: Evidence from the Euro Area

William Arrata,Benoit Nguyen,Imene Rahmouni-Rousseau,Miklos Vari
The Scarcity Effect of Quantitative Easing on Repo Rates Evidence from the Euro Area Book PDF

Author : William Arrata,Benoit Nguyen,Imene Rahmouni-Rousseau,Miklos Vari
Publisher : International Monetary Fund
Page : 45 pages
File Size : 50,5 Mb
Release : 2018-12-07
Category : Business & Economics
ISBN : 9781484389508

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The Scarcity Effect of Quantitative Easing on Repo Rates: Evidence from the Euro Area by William Arrata,Benoit Nguyen,Imene Rahmouni-Rousseau,Miklos Vari Pdf

Most short-term interest rates in the Euro area are below the European Central Bank deposit facility rate, the rate at which the central bank remunerates banks’ excess reserves. This unexpected development coincided with the start of the Public Sector Purchase Program (PSPP). In this paper, we explore empirically the interactions between the PSPP and repo rates. We document different channels through which asset purchases may affect them. Using proprietary data from PSPP purchases and repo transactions for specific (“special") securities, we assess the scarcity channel of PSPP and its impact on repo rates. We estimate that purchasing 1 percent of a bond outstanding is associated with a decline of its repo rate of 0.78 bps. Using an instrumental variable, we find that the full effect may be up to six times higher.

The Scarcity Effect of Quantitative Easing on Repo Rates: Evidence from the Euro Area

William Arrata,Benoit Nguyen,Imene Rahmouni-Rousseau,Miklos Vari
The Scarcity Effect of Quantitative Easing on Repo Rates Evidence from the Euro Area Book PDF

Author : William Arrata,Benoit Nguyen,Imene Rahmouni-Rousseau,Miklos Vari
Publisher : International Monetary Fund
Page : 45 pages
File Size : 47,5 Mb
Release : 2018-12-07
Category : Business & Economics
ISBN : 9781484386910

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The Scarcity Effect of Quantitative Easing on Repo Rates: Evidence from the Euro Area by William Arrata,Benoit Nguyen,Imene Rahmouni-Rousseau,Miklos Vari Pdf

Most short-term interest rates in the Euro area are below the European Central Bank deposit facility rate, the rate at which the central bank remunerates banks’ excess reserves. This unexpected development coincided with the start of the Public Sector Purchase Program (PSPP). In this paper, we explore empirically the interactions between the PSPP and repo rates. We document different channels through which asset purchases may affect them. Using proprietary data from PSPP purchases and repo transactions for specific (“special") securities, we assess the scarcity channel of PSPP and its impact on repo rates. We estimate that purchasing 1 percent of a bond outstanding is associated with a decline of its repo rate of 0.78 bps. Using an instrumental variable, we find that the full effect may be up to six times higher.

Enabling Deep Negative Rates to Fight Recessions: A Guide

Ruchir Agarwal,Miles Kimball
Enabling Deep Negative Rates to Fight Recessions A Guide Book PDF

Author : Ruchir Agarwal,Miles Kimball
Publisher : International Monetary Fund
Page : 89 pages
File Size : 53,5 Mb
Release : 2019-04-29
Category : Business & Economics
ISBN : 9781484398777

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Enabling Deep Negative Rates to Fight Recessions: A Guide by Ruchir Agarwal,Miles Kimball Pdf

The experience of the Great Recession and its aftermath revealed that a lower bound on interest rates can be a serious obstacle for fighting recessions. However, the zero lower bound is not a law of nature; it is a policy choice. The central message of this paper is that with readily available tools a central bank can enable deep negative rates whenever needed—thus maintaining the power of monetary policy in the future to end recessions within a short time. This paper demonstrates that a subset of these tools can have a big effect in enabling deep negative rates with administratively small actions on the part of the central bank. To that end, we (i) survey approaches to enable deep negative rates discussed in the literature and present new approaches; (ii) establish how a subset of these approaches allows enabling negative rates while remaining at a minimum distance from the current paper currency policy and minimizing the political costs; (iii) discuss why standard transmission mechanisms from interest rates to aggregate demand are likely to remain unchanged in deep negative rate territory; and (iv) present communication tools that central banks can use both now and in the event to facilitate broader political acceptance of negative interest rate policy at the onset of the next serious recession.

Negative Interest Rate Policy (NIRP)

Andreas Jobst,Huidan Lin
Negative Interest Rate Policy NIRP Book PDF

Author : Andreas Jobst,Huidan Lin
Publisher : International Monetary Fund
Page : 48 pages
File Size : 53,5 Mb
Release : 2016-08-10
Category : Business & Economics
ISBN : 9781475524475

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Negative Interest Rate Policy (NIRP) by Andreas Jobst,Huidan Lin Pdf

More than two years ago the European Central Bank (ECB) adopted a negative interest rate policy (NIRP) to achieve its price stability objective. Negative interest rates have so far supported easier financial conditions and contributed to a modest expansion in credit, demonstrating that the zero lower bound is less binding than previously thought. However, interest rate cuts also weigh on bank profitability. Substantial rate cuts may at some point outweigh the benefits from higher asset values and stronger aggregate demand. Further monetary accommodation may need to rely more on credit easing and an expansion of the ECB’s balance sheet rather than substantial additional reductions in the policy rate.

Euro Area Policies

International Monetary Fund. European Dept.
Euro Area Policies Book PDF

Author : International Monetary Fund. European Dept.
Publisher : International Monetary Fund
Page : 18 pages
File Size : 45,8 Mb
Release : 2023-07-19
Category : Business & Economics
ISBN : 9798400248733

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Euro Area Policies by International Monetary Fund. European Dept. Pdf

Euro Area Policies: Selected Issues

Global Financial Stability Report, April 2012

International Monetary Fund. Monetary and Capital Markets Department
Global Financial Stability Report April 2012 Book PDF

Author : International Monetary Fund. Monetary and Capital Markets Department
Publisher : International Monetary Fund
Page : 94 pages
File Size : 46,5 Mb
Release : 2012-04-18
Category : Business & Economics
ISBN : 9781616352479

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Global Financial Stability Report, April 2012 by International Monetary Fund. Monetary and Capital Markets Department Pdf

The April 2012 Global Financial Stability Report assesses changes in risks to financial stability over the past six months, focusing on sovereign vulnerabilities, risks stemming from private sector deleveraging, and assessing the continued resilience of emerging markets. The report probes the implications of recent reforms in the financial system for market perception of safe assets, and investigates the growing public and private costs of increased longevity risk from aging populations.

German Bond Yields and Debt Supply: Is There a “Bund Premium”?

Anne-Charlotte Paret,Anke Weber
German Bond Yields and Debt Supply Is There a Bund Premium Book PDF

Author : Anne-Charlotte Paret,Anke Weber
Publisher : International Monetary Fund
Page : 34 pages
File Size : 52,8 Mb
Release : 2019-11-01
Category : Business & Economics
ISBN : 9781513518329

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German Bond Yields and Debt Supply: Is There a “Bund Premium”? by Anne-Charlotte Paret,Anke Weber Pdf

Are Bunds special? This paper estimates the “Bund premium” as the difference in convenience yields between other sovereign safe assets and German government bonds adjusted for sovereign credit risk, liquidity and swap market frictions. A higher premium suggests less substitutability of sovereign bonds. We document a rise in the “Bund premium” in the post-crisis period. We show that there is a negative relationship of the premium with the relative supply of German sovereign bonds, which is more pronounced for higher maturities and when risk aversion proxied by bond market volatility is high. Going forward, we expect German government debt supply to remain scarce, with important implications for the ECB’s monetary policy strategy.

Pledged Collateral Market's Role in Transmission to Short-Term Market Rates

Mr.Manmohan Singh,Rohit Goel
Pledged Collateral Market s Role in Transmission to Short Term Market Rates Book PDF

Author : Mr.Manmohan Singh,Rohit Goel
Publisher : International Monetary Fund
Page : 21 pages
File Size : 48,6 Mb
Release : 2019-05-17
Category : Business & Economics
ISBN : 9781498312790

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Pledged Collateral Market's Role in Transmission to Short-Term Market Rates by Mr.Manmohan Singh,Rohit Goel Pdf

In global financial centers, short-term market rates are effectively determined in the pledged collateral market, where banks and other financial institutions exchange collateral (such as bonds and equities) for money. Furthermore, the use of long-dated securities as collateral for short tenors—or example, in securities-lending and repo markets, and prime brokerage funding—impacts the risk premia (or moneyness) along the yield curve. In this paper, we deploy a methodology to show that transactions using long dated collateral also affect short-term market rates. Our results suggest that the unwind of central bank balance sheets will likely strengthen the monetary policy transmission, as dealer balance-sheet space is now relatively less constrained, with a rebound in collateral reuse.

The Incredible Upside-Down Fixed-Income Market: Negative Interest Rates and Their Implications

Vineer Bhansali
The Incredible Upside Down Fixed Income Market Negative Interest Rates and Their Implications Book PDF

Author : Vineer Bhansali
Publisher : CFA Institute Research Foundation
Page : 107 pages
File Size : 53,8 Mb
Release : 2021
Category : Business & Economics
ISBN : 9781952927195

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The Incredible Upside-Down Fixed-Income Market: Negative Interest Rates and Their Implications by Vineer Bhansali Pdf

In recorded financial history, there are almost no occasions, other than the present, where a significant portion of the global bond markets has been trading at negative nominal yields. Is this an anomaly or what will be the normal state of the financial markets in years to come? This monograph investigates the ongoing debate between the pros and cons of negative nominal yields and the economic rationale(s) that are used to justify or criticize underlying policies. Even in academic circles, few agree on the costs and benefits of negative yields. Surveying the global bond markets of the day, I find the impact of negative yields in almost all regions and sectors, though sovereign bond markets, which are closest to monetary policy, are the dominant category of bonds with negative yields. I next look at the participants in the negatively yielding bond market and at the motivations that justify their actions. The conclusion is that although different participants might have different reasons to buy negatively yielding bonds, their collective action is certainly responsible for creating a local equilibrium in which these markets clear. Central bank policy is the next focus in this monograph, and I discuss in depth the economic rationale as propounded by one such bank, the European Central Bank. I conclude with a discussion of the blurring lines between monetary and fiscal policy, which are likely to become centerpieces in future years as global sovereign debt levels rise. Next, I look at the influence of negative yields on other asset markets, such as equities, and especially derivatives markets, such as the demand for options. A discussion of potential risks then follows. The monograph concludes with a review of the impact of negative yields on nonfinancial aspects of society. Although the forecast is anything but crystal clear, the evolution of markets and economics in the years to come will undoubtedly be influenced by this massive economic experiment of negative yields.

Mission Incomplete

Sayuri Shirai
Mission Incomplete Book PDF

Author : Sayuri Shirai
Publisher : Unknown
Page : 242 pages
File Size : 55,8 Mb
Release : 2018-07-31
Category : Economic development
ISBN : 4899740972

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Mission Incomplete by Sayuri Shirai Pdf

In April 2013 the Bank of Japan launched an unprecedented quantitative and qualitative monetary easing policy. It was thought that a 2% price stability target could be achieved within 2 years; 4 years on and we are still mission incomplete. Mission incomplete! This phrase neatly captures the progress made by the Bank of Japan (BOJ) in reflating the economy. In April 2013, the BOJ launched an unprecedented quantitative and qualitative monetary easing policy. The BOJ was certain that the 2% price stability target would be achieved within 2 years. About 4 years later, the BOJ lags behind other major central banks, with actual inflation and inflation expectations still well below 2%. What happened? And what should the BOJ do next? This former policy maker's account expertly traces and analyzes the policy's consequences.

Euro Area Policies

International Monetary Fund. Monetary and Capital Markets Department
Euro Area Policies Book PDF

Author : International Monetary Fund. Monetary and Capital Markets Department
Publisher : International Monetary Fund
Page : 44 pages
File Size : 47,6 Mb
Release : 2018-07-19
Category : Business & Economics
ISBN : 9781484369487

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Euro Area Policies by International Monetary Fund. Monetary and Capital Markets Department Pdf

The flexibility shown by the ECB/Eurosystem in adapting its framework, as required by circumstances, has helped improve funding and liquidity conditions. Compared to the situation pre-crisis, the ECB/Eurosystem has provided liquidity against a broader range of collateral and for as long as four years in terms of maturity; extended liquidity in foreign currency; conducted outright purchases of public and private sector assets (now tapering off); and reduced interest rates into negative territory. In these arrangements, policy is directed from the center, but is implemented mostly by the National Central Banks (NCBs); risks are largely shared. Market participants are complimentary about the role the ECB/Eurosystem has played in backstopping the financial system and its forward guidance on monetary policy.

Government Bonds and their Investors

Mr.Jochen R. Andritzky
Government Bonds and their Investors Book PDF

Author : Mr.Jochen R. Andritzky
Publisher : International Monetary Fund
Page : 30 pages
File Size : 41,9 Mb
Release : 2012-06-01
Category : Business & Economics
ISBN : 9781475570052

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Government Bonds and their Investors by Mr.Jochen R. Andritzky Pdf

This paper introduces a new dataset on the composition of the investor base for government securities in the G20 advanced economies and the euro area. During the last decades, investors from abroad have increased their presence in government bond markets. The financial crisis broke this trend. Domestic financial institutions allocated a larger share of government securities in their portfolios, as Japan has done since its crisis in the 1990s. Increases in the share held by institutional investors or non-residents by 10 percentage points are associated with a reduction in yields by about 25 or 40 basis points, respectively. The data show a varied lead-lag relationship between bond yields and investor holdings. Portfolio balance estimates suggest that a change in statutory or regulatory holdings of government securities to the tune of 10 percent of the outstanding stock causes expected returns to decline by 7 to 25 basis points.

Bank Funding Costs for International Banks

MissRita Babihuga,Marco Spaltro
Bank Funding Costs for International Banks Book PDF

Author : MissRita Babihuga,Marco Spaltro
Publisher : International Monetary Fund
Page : 38 pages
File Size : 55,6 Mb
Release : 2014-04-30
Category : Business & Economics
ISBN : 9781475517910

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Bank Funding Costs for International Banks by MissRita Babihuga,Marco Spaltro Pdf

This paper investigates the determinants of bank funding costs for a sample of internationally active banks from 2001–12. We find that changes in banks’ unsecured funding costs are associated with bank-specific characteristics such as an institution’s credit worthiness and the return on its market value, and importantly, on the level and quality of capital. Similarly, market factors such as the level of investor risk appetite, as well as shocks to financial markets—notably the US subprime crisis and the Euro Area sovereign debt crisis—have also been key drivers of the sharp rise in bank funding costs. We also find evidence that large systemically important institutions have enjoyed a funding advantage, and that this advantage has risen since the onset of the two crises. With the exception of Euro Area periphery banks, by end-2012 the rise in funding costs had generally been reversed for most major banks as a result of improvments in bank asset quality as well as steps taken to increase resilience, notably higher capitalization. Our results suggest increased capital buffers may potentially support bank lending to the real economy by reducing bank funding costs.

Flow and Stock Effects of Large-Scale Treasury Purchases

Stefania D'Amico
Flow and Stock Effects of Large Scale Treasury Purchases Book PDF

Author : Stefania D'Amico
Publisher : DIANE Publishing
Page : 40 pages
File Size : 51,9 Mb
Release : 2011-02
Category : Business & Economics
ISBN : 9781437941647

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Flow and Stock Effects of Large-Scale Treasury Purchases by Stefania D'Amico Pdf

This is a print on demand edition of a hard to find publication. Using a panel of daily CUSIP-level data, the authors study the effects of the Federal Reserve¿s program to purchase $300 billion of U.S. Treasury coupon securities announced and implemented during 2009. The authors find that each purchase operation, on average, caused a decline in yields in the sector purchased of 3.5 basis points on the days when these purchases occurred (the ¿flow effect¿ of the program). In addition, the program as a whole resulted in a persistent downward shift in the yield curve of as much as 50 basis points (the ¿stock effect¿), with the largest impact in the 10- to 15-year sector. The coefficient patterns generally support a view of segmentation or imperfect substitution within the Treasury market. Charts and tables.

The Chicago Plan Revisited

Mr.Jaromir Benes,Mr.Michael Kumhof
The Chicago Plan Revisited Book PDF

Author : Mr.Jaromir Benes,Mr.Michael Kumhof
Publisher : International Monetary Fund
Page : 71 pages
File Size : 48,8 Mb
Release : 2012-08-01
Category : Business & Economics
ISBN : 9781475505528

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The Chicago Plan Revisited by Mr.Jaromir Benes,Mr.Michael Kumhof Pdf

At the height of the Great Depression a number of leading U.S. economists advanced a proposal for monetary reform that became known as the Chicago Plan. It envisaged the separation of the monetary and credit functions of the banking system, by requiring 100% reserve backing for deposits. Irving Fisher (1936) claimed the following advantages for this plan: (1) Much better control of a major source of business cycle fluctuations, sudden increases and contractions of bank credit and of the supply of bank-created money. (2) Complete elimination of bank runs. (3) Dramatic reduction of the (net) public debt. (4) Dramatic reduction of private debt, as money creation no longer requires simultaneous debt creation. We study these claims by embedding a comprehensive and carefully calibrated model of the banking system in a DSGE model of the U.S. economy. We find support for all four of Fisher's claims. Furthermore, output gains approach 10 percent, and steady state inflation can drop to zero without posing problems for the conduct of monetary policy.