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Effects of Changing Monetary and Regulatory Policy on Money Markets

Author

Listed:
  • Elizabeth Klee

    (Federal Reserve Board)

  • Zeynep Senyuz

    (Federal Reserve Board)

  • Emre Yoldas

    (Federal Reserve Board)

Abstract

The global financial crisis and the resulting policy response led to substantial changes in U.S. dollar funding markets, which are crucial for the functioning of the financial system and the transmission of monetary policy in the United States. We develop and test hypotheses on the effects of changing monetary and regulatory policy on key funding rates. We show that the federal funds rate continued to provide an anchor for unsecured rates, albeit weaker, while its transmission to the secured repo rate is hampered in the post-crisis period. The Federal Reserve's reverse repurchase facility led to stronger co-movement and reduced volatility of money market rates. The new regulations and the superabundant reserves environment affected rate dynamics on calendar days primarily through increased balance sheet costs.

Suggested Citation

  • Elizabeth Klee & Zeynep Senyuz & Emre Yoldas, 2019. "Effects of Changing Monetary and Regulatory Policy on Money Markets," International Journal of Central Banking, International Journal of Central Banking, vol. 15(4), pages 165-205, October.
    • Handle: RePEc:ijc:ijcjou:y:2019:q:4:a:5
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    Citations

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    Cited by:

    1. Corradin, Stefano & Eisenschmidt, Jens & Hoerova, Marie & Linzert, Tobias & Schepens, Glenn & Sigaux, Jean-David, 2020. "Money markets, central bank balance sheet and regulation," Working Paper Series 2483, European Central Bank.
    2. Manjola Tase, 2022. "Demand Segmentation in the Federal Funds Market," Finance and Economics Discussion Series 2022-071, Board of Governors of the Federal Reserve System (U.S.).
    3. Anderson, Alyssa & Tase, Manjola, 2024. "Monetary policy pass-through after the LCR," Economics Letters, Elsevier, vol. 234(C).
    4. Jane E. Ihrig & Zeynep Senyuz & Gretchen C. Weinbach, 2020. "The Fed’s “Ample-Reserves” Approach to Implementing Monetary Policy," Finance and Economics Discussion Series 2020-022, Board of Governors of the Federal Reserve System (U.S.).
    5. Mariusz Kapuściński, 2022. "The consequences of the bank levy in Poland," NBP Working Papers 346, Narodowy Bank Polski.

    More about this item

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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