Eurosystem's Asset Purchases and Money Market Rates

43 Pages Posted: 6 Dec 2017

See all articles by William Arrata

William Arrata

Banque de France

Benoît Nguyen

Banque de France

Imene Rahmouni-Rousseau

Banque de France

Miklos Vari

Banque de France

Date Written: December 2017

Abstract

Some Euro area money market rates have been standing below the deposit facility rate since 2015, which coincided with the start of the Eurosystem’s public sector purchase program (PSPP). In this paper, we explore empirically the interactions between the PSPP and short term secured money market rates (repo rates). We document different channels through which asset purchases may affect the various segments of the Euro area repo market. Using proprietary data from the PSPP purchases and transactions made on the repo market for specific securities (“special”), our results show that the PSPP has contributed to push down repo rate, in particular prior to January 2017. On average, purchasing 1% of a bond outstanding is associated with a decline in its repo rate of -0.78 bps.

Keywords: specialness, repo market, asset purchases, money market

JEL Classification: E52, E58, G10

Suggested Citation

Arrata, William and Nguyen, Benoît and Rahmouni-Rousseau, Imene and Vari, Miklos, Eurosystem's Asset Purchases and Money Market Rates (December 2017). Banque de France Working Paper No. 652, Available at SSRN: https://ssrn.com/abstract=3082767 or http://dx.doi.org/10.2139/ssrn.3082767

William Arrata (Contact Author)

Banque de France ( email )

Paris
France

Benoît Nguyen

Banque de France ( email )

Paris
France

Imene Rahmouni-Rousseau

Banque de France ( email )

Paris
France

Miklos Vari

Banque de France ( email )

Paris
France

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