Download This PaperMonetary Policy Disconnect
University of St.Gallen, School of Finance Research Paper No. 2020/03
53 Pages Posted: 21 Sep 2020 Last revised: 15 Dec 2020
Date Written: September 4, 2020
Abstract
Although designed to support monetary policy, two crucial aspects of the central bank framework can disconnect the monetary policy transmission: banks’ access to central bank deposits and Quantitative Easing (QE). We show how both hinder the monetary policy transmission through the main short-term funding market, the repurchase agreement (repo) market. First, lending rates of banks with access to the deposit facility are less responsive to the monetary policy rate. Second, repo rates secured by assets eligible for QE programs are more disconnected from the policy rate. Both effects create rate dispersion and add to one another in weakening the monetary policy transmission.
Keywords: Interest rate pass-through, Monetary Policy, disconnect, short-term interest rates, repo
JEL Classification: E40, E43, E50, E52, E58, G18
Suggested Citation: Suggested Citation
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
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