Money Market Disconnect

Review of Financial Studies, Volume 36, Issue 10, October 2023, Pages 4158–4189

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

Swiss Finance Institute Research Paper No. 23-12

44 Pages Posted: 21 Sep 2020 Last revised: 3 Oct 2023

See all articles by Benedikt Ballensiefen

Benedikt Ballensiefen

University of St. Gallen - School of Finance

Angelo Ranaldo

University of St. Gallen; Swiss Finance Institute

Hannah Winterberg

University of St. Gallen

Date Written: September 4, 2020

Abstract

A repurchase agreement (repo) is a source of cash and collateral. We document that the money market is more segmented when the collateral motive prevails. Two crucial aspects of the central bank framework lead to this disconnect: banks’ access to the central bank's deposit facility and assets’ eligibility for Quantitative Easing (QE). We show that repo rates lent by banks with access to the deposit facility and secured by QE eligible assets are more collateral-driven and disconnected from funding-based money market rates. Our results are relevant for different monetary policies and have suggestive implications for the monetary policy pass-through.

Keywords: Money Market, Segmentation, Deposit Facility, QE, Monetary Policy

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

Suggested Citation

Ballensiefen, Benedikt and Ranaldo, Angelo and Winterberg, Hannah, Money Market Disconnect (September 4, 2020). Review of Financial Studies, Volume 36, Issue 10, October 2023, Pages 4158–4189, University of St.Gallen, School of Finance Research Paper No. 2020/03, Swiss Finance Institute Research Paper No. 23-12, 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 )

School of Finance
Unterer Graben 21
St. Gallen, 9000
Switzerland
+41712247010 (Phone)

HOME PAGE: http://fin-sr.unisg.ch

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland
+41796637711 (Phone)

HOME PAGE: http://www.sfi.ch/de/about-us/news/hsg-faculty-members

Hannah Winterberg

University of St. Gallen ( email )

Varnbüelstrasse 19
FGN-HSG
St.Gallen, 9000
Switzerland

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