Monetary Policy Transmission in Segmented Markets

89 Pages Posted: 15 Jan 2021 Last revised: 29 Nov 2021

See all articles by Jens Eisenschmidt

Jens Eisenschmidt

Morgan Stanley

Yiming Ma

Columbia University - Columbia Business School

Anthony Lee Zhang

University of Chicago - Booth School of Business

Date Written: May 15, 2020

Abstract

We show that dealer market power impedes the pass-through of monetary policy in repo markets, which is an important first stage of monetary policy transmission. In the European repo market, most participants do not have access to trade on centralized exchanges. Rather, they rely on OTC intermediation by a small number of dealers that exhibit significant market power. As a result, the passthrough of the ECB's policy rate to repo markets is inefficient and unequal. Our estimates imply that a secured funding facility like the Fed's RRP can alleviate dealer market power and improve the transmission efficiency of monetary policy.

Keywords: monetary policy, pass-through efficiency, repo market, market power

JEL Classification: G20, G21, E50

Suggested Citation

Eisenschmidt, Jens and Ma, Yiming and Zhang, Anthony Lee, Monetary Policy Transmission in Segmented Markets (May 15, 2020). Available at SSRN: https://ssrn.com/abstract=3756410 or http://dx.doi.org/10.2139/ssrn.3756410

Jens Eisenschmidt

Morgan Stanley ( email )

1585 Broadway
New York, NY 10036
United States

Yiming Ma (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Anthony Lee Zhang

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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