Monetary Policy Disconnect

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

95 Pages Posted: 21 Sep 2020 Last revised: 17 May 2021

See all articles by Benedikt Ballensiefen

Benedikt Ballensiefen

University of St. Gallen - School of Finance

Angelo Ranaldo

University of St. Gallen

Hannah Winterberg

University of St. Gallen

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

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

Hannah Winterberg

University of St. Gallen ( email )

Varnbüelstrasse 19
FGN-HSG
St.Gallen, 9000
Switzerland

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