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Money Market Disconnect

Author

Listed:
  • Benedikt Ballensiefen
  • Angelo Ranaldo
  • Hannah Winterberg
  • Ralph Koijen

Abstract

A repurchase agreement (repo) is a source of cash and collateral. We document that the money market is more segmented when the collateral motive prevails. Two crucial aspects of the central bank framework lead to this disconnect: banks’ access to the central bank’s deposit facility and assets’ eligibility for quantitative easing (QE). We show that repo rates lent by banks with access to the deposit facility and secured by QE eligible assets are more collateral-driven and disconnected from funding-based money market rates. Our results are relevant for different monetary policies and have suggestive implicationsfor the monetary policy pass-through.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Benedikt Ballensiefen & Angelo Ranaldo & Hannah Winterberg & Ralph Koijen, 2023. "Money Market Disconnect," The Review of Financial Studies, Society for Financial Studies, vol. 36(10), pages 4158-4189.
    • Handle: RePEc:oup:rfinst:v:36:y:2023:i:10:p:4158-4189.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhad022
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    Cited by:

    1. Coen, Jamie & Coen, Patrick & Hüser, Anne-Caroline, 2024. "Collateral demand in wholesale funding markets," Bank of England working papers 1082, Bank of England.
    2. Eisenschmidt, Jens & Ma, Yiming & Zhang, Anthony Lee, 2024. "Monetary policy transmission in segmented markets," Journal of Financial Economics, Elsevier, vol. 151(C).
    3. Grasso, Adriana & Poinelli, Andrea, 2025. "Flexible asset purchases and repo market functioning," Working Paper Series 3013, European Central Bank.
    4. Jappelli, Ruggero & Pelizzon, Loriana & Subrahmanyam, Marti G., 2023. "Quantitative easing, the repo market, and the term structure of interest rates," SAFE Working Paper Series 395, Leibniz Institute for Financial Research SAFE.

    More about this item

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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