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Interest Rate Setting on the Swiss Franc Repo Market

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Author Info
Sébastien Kraenzlin
Abstract

Repurchase agreements (repos) are secured money market transactions. The cash taker provides collateral in the form of securities and in return receives money from the cash provider. To ensure the continuous covering of the cash amount, the definition of eligible collateral, its handling and valuation play an important role. This is mainly because the collateral nearly eliminates credit risk. In Switzerland, Swiss franc repos are almost exclusively conducted via the highly standardized repo platform, with four different pre-defined collateral baskets. Each basket comprises different security categories, such as government bonds or covered bonds. This paper analyzes the interest rate setting on the repo market with data from June 1999 to June 2005. It evaluates, among others, if the securities provided as collateral influenced the repo rate or not. Surprisingly, a price differentiation with respect to the collateral provided is found. Consequently the paper provides an explanation for this finding and discusses a possible solution.

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Publisher Info
Article provided by Swiss Society of Economics and Statistics (SSES) in its journal Swiss Journal of Economics and Statistics.

Volume (Year): 145 (2009)
Issue (Month): III (September)
Pages: 351-377
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Handle: RePEc:ses:arsjes:2009-iii-4

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Web page: http://www.sjes.ch
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Related research
Keywords: Repurchase Agreement; Repo; Monetary Policy; Panel Data Econometrics; Collateral; Switzerland;

Find related papers by JEL classification:
C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data
E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Determination of Interest Rates; Term Structure of Interest Rates
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

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This page was last updated on 2009-12-11.


This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.