Abstract
This paper examines the impact of the Eurosystem's increased footprint in financial markets, resulting from the response to the Covid-19 crisis, on repo rates. We exploit transaction-level data on the repo market and the Eurosystem's purchase programmes and find that both marginal purchases (flow effect) and aggregate holdings (stock effect) have a significant downward impact on repo rates. The stock effect is nonlinear, and amplified when the central bank's holdings are larger. Finally, we find that the Eurosystem's Securities Lending Facility alleviates this collateral scarcity, but it does not fully compensate for the downward pressure on rates created by purchases.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
