Monetary Policy Disconnect

University of St.Gallen, School of Finance Research Paper No. 2020/03

87 Pages Posted: 21 Sep 2020 Last revised: 28 Sep 2020

See all articles by Benedikt Ballensiefen

Benedikt Ballensiefen

University of St. Gallen - School of Finance

Angelo Ranaldo

University of St. Gallen; University of St. Gallen - School of Finance

Hannah Winterberg

University of St. Gallen

Date Written: September 4, 2020

Abstract

We analyze and quantify how two forms of segmentation lead to the monetary policy disconnect. To do this, we study the monetary policy transmission through the main short-term funding market, the repurchase agreement (repo) market. First, the lending rates of banks with access to the central bank's deposit facility are less responsive to the monetary policy target rate. Second, rates of repos secured by assets eligible for Quantitative Easing programs diverge more from the target rate. We also find that both forms of segmentation add to one another, suggesting an amplifying effect in weakening monetary policy transmission.

Keywords: Interest rate pass-through, monetary policy, Market segmentation, short-term interest rates, repo

JEL Classification: E40, E43, E50, E52, E58, G18

Suggested Citation

Ballensiefen, Benedikt and Ranaldo, Angelo and Winterberg, Hannah, Monetary Policy Disconnect (September 4, 2020). University of St.Gallen, School of Finance Research Paper No. 2020/03, Available at SSRN: https://ssrn.com/abstract=3689551 or http://dx.doi.org/10.2139/ssrn.3689551

Benedikt Ballensiefen

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Angelo Ranaldo (Contact Author)

University of St. Gallen ( email )

Swiss Institute of Banking and Finance s/bf-HSG
Unterer Graben 21
St. Gallen, 9000
Switzerland
+41712247010 (Phone)

HOME PAGE: http://www.sbf.unisg.ch/Lehrstuehle/Lehrstuhl_Ranaldo/Homepage_Ranaldo.aspx

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Hannah Winterberg

University of St. Gallen ( email )

VarnbĂĽelstrasse 19
FGN-HSG
St.Gallen, 9000
Switzerland

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