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Pledged Collateral Market's Role in Transmission to Short-Term Market Rates

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  • Mr. Manmohan Singh
  • Rohit Goel

Abstract

In global financial centers, short-term market rates are effectively determined in the pledged collateral market, where banks and other financial institutions exchange collateral (such as bonds and equities) for money. Furthermore, the use of long-dated securities as collateral for short tenors—or example, in securities-lending and repo markets, and prime brokerage funding—impacts the risk premia (or moneyness) along the yield curve. In this paper, we deploy a methodology to show that transactions using long dated collateral also affect short-term market rates. Our results suggest that the unwind of central bank balance sheets will likely strengthen the monetary policy transmission, as dealer balance-sheet space is now relatively less constrained, with a rebound in collateral reuse.

Suggested Citation

  • Mr. Manmohan Singh & Rohit Goel, 2019. "Pledged Collateral Market's Role in Transmission to Short-Term Market Rates," IMF Working Papers 2019/106, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2019/106
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    References listed on IDEAS

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    5. Simon M. Potter, 2015. "Money markets and monetary policy normalization," Speech 164, Federal Reserve Bank of New York.
    6. William Arrata & Benoit Nguyen & Imene Rahmouni-Rousseau & Miklos Vari, 2018. "The Scarcity Effect of Quantitative Easing on Repo Rates: Evidence from the Euro Area," IMF Working Papers 2018/258, International Monetary Fund.
    7. Malik, Sheheryar & Meldrum, Andrew, 2016. "Evaluating the robustness of UK term structure decompositions using linear regression methods," Journal of Banking & Finance, Elsevier, vol. 67(C), pages 85-102.
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    9. Belinda Cheung & Mark Manning & Angus Moore, 2014. "The Effective Supply of Collateral in Australia," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 53-66, September.
    10. Mr. Manmohan Singh, 2011. "Velocity of Pledged Collateral: Analysis and Implications," IMF Working Papers 2011/256, International Monetary Fund.
    11. Mr. Manmohan Singh & Haobin Wang, 2017. "Central Bank Balance Sheet Policies and Spillovers to Emerging Markets," IMF Working Papers 2017/172, International Monetary Fund.
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    Cited by:

    1. Gökçer Özgür, 2021. "Shadow banking and financial intermediation," Metroeconomica, Wiley Blackwell, vol. 72(4), pages 731-757, November.

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