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Pledged Collateral Market's Role in Transmission to Short-Term Market Rates
Author:
Mr. Manmohan Singh
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and
Rohit Goel null

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Series:
IMF Working Papers
Volume/Issue:
Volume 2019: Issue 106
Language:
English
Publication Date:
17 May 2019
DOI:
https://doi.org/10.5089/9781498312790.001
ISBN:
9781498312790
ISSN:
1018-5941
Pages:
21
Keywords:
WP; rate; central bank; balance sheet; market; central banks balance sheet; monetary policy transmission; collateral velocity; excess reserves; policy rate hike; market rate; securities lender; utility value; collateral market; reverse repo; transmission mechanism; overnight market rate; securities lending; short-term market rate; Collateral; Central bank balance sheet; Financial statements; Securities; Bonds; Global
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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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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund