Monetary Policy and Credit Markets
Friday, Jan. 5, 2018 10:15 AM - 12:15 PM
- Chair: Alistair Milne, Loughborough University
Cross-border Bank Flows and Monetary Policy
Do Conventional Monetary Policy Instruments Matter in Unconventional Times?
AbstractThis paper investigates how declines in the deposit facility rate set by the ECB affect euro area banks’ incentives to hold reserves at the central bank. We find that, in the face of lower deposit rates, banks with a more interest-sensitive business model are more likely to reduce reserve holdings and allocate freed-up liquidity to loans. The result is driven by well-capitalized banks in the non-GIIPS countries of the euro area. This reveals limitations of conventional monetary policy instruments during times of crisis and may be one reason for the ECB’s switch to unconventional monetary policy instruments.
Window-dressing and the Fed's RRP Facility in the Repo Market
AbstractWe analyze repurchase agreement (repo) markets in the wake of Basel III regulations and the reverse repo facility of the Federal Reserve (Fed). Using a proprietary data set of repo transactions, we find that differences in regional implementation of these regulations intensified window-dressing by European dealers who reduced their borrowing by 17% on financial reporting days. Consequently, money funds cut their repo lending by half and lent to the Fed instead when European dealers withdraw. In a difference-in-differences setting, we quantify these effects on relationships, and find that funds ineligible for Fed trades lent 15% less to European dealers compared with eligible funds.
- G2 - Financial Institutions and Services
- E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit