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The Scarcity Effect of Quantitative Easing on Repo Rates: Evidence from the Euro Area
Author:
William Arrata null

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Benoit Nguyen null

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Imene Rahmouni-Rousseau null

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Miklos Vari null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2018: Issue 258
Language:
English
Publication Date:
07 Dec 2018
DOI:
https://doi.org/10.5089/9781484386910.001
ISBN:
9781484386910
ISSN:
1018-5941
Pages:
45
Keywords:
WP; repo rate; repo market; GC rate; SC rate; monetary policy; Specialness; asset purchases; money market; Repo rates; Bonds; Securities; Excess liquidity; Money markets
Legal-disclaimer:
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund