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Journal of Financial Economics Vol. 137 No. 3 2020

The scarcity effect of QE on repo rates: Evidence from the euro area

William Arrata1; Benoît Nguyen1; Imène Rahmouni-Rousseau2; Miklos Vari3

1 Banque de France · 2 European Central Bank · 3 International Monetary Fund

Abstract

Most short-term interest rates in the euro area are below the European Central Bank deposit facility rate, the rate at which the central bank remunerates banks for excess reserves. This coincided with the start of the Public Sector Purchase Program (PSPP) launched in March 2015. In this paper, we explore empirically the interactions between the PSPP and repo rates. Using proprietary data from PSPP purchases and repo transactions for specific (“special”) securities, we assess the scarcity channel of PSPP and its impact on repo rates. We estimate that purchasing 1% of a bond outstanding is associated with a decline of its repo rate of 0.78 basis points.

DOI
10.1016/j.jfineco.2020.04.009
Volume
137
Issue
3
Pages
837-856
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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