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The impact of margin policies on the Italian repo market

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  • Miglietta, Arianna
  • Picillo, Cristina
  • Pietrunti, Mario

Abstract

In this paper we investigate the impact of changes in initial margins on the cost of funding in the Italian repo market using a unique data-set that covers the Sovereign debt crisis (between January 2011 and February 2012) and the subsequent phase of abundant central bank liquidity. The analysis shows that in stressed times an increase in the level of initial margins had a positive and significant effect on the cost of short-term funding; on average, for each 1 percentage point variation in the margin, a 10 basis points increase in repo rates followed. We also find that liquidity and credit risk, as well as variables capturing idiosyncratic pressures in funding needs, exerted a significant and upward impact on the cost of short-term funding. On the other hand, in the period between March and December 2012, when liquidity was abundant due to monetary policy easing, the relationship between initial margins and the cost of short-term funding became negative as liquidity takers were less in need of funds.

Suggested Citation

  • Miglietta, Arianna & Picillo, Cristina & Pietrunti, Mario, 2019. "The impact of margin policies on the Italian repo market," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).
    • Handle: RePEc:eee:ecofin:v:50:y:2019:i:c:s1062940818304704
    DOI: 10.1016/j.najef.2019.100998
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    1. Concetta Rondinelli & Roberta Zizza, 2020. "Spend today or spend tomorrow? The role of inflation expectations in consumer behaviour," Temi di discussione (Economic working papers) 1276, Bank of Italy, Economic Research and International Relations Area.
    2. Cristina Di Luigi & Antonio Perrella & Alessio Ruggieri, 2024. "The fundamental role of the repo market and central clearing," Mercati, infrastrutture, sistemi di pagamento (Markets, Infrastructures, Payment Systems) 48, Bank of Italy, Directorate General for Markets and Payment System.

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    More about this item

    Keywords

    E43; G01; G10; Repurchase agreements; Interbank markets; Central counterparties; Margin policies; Financial crises;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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