Central bank liquidity and market liquidity: the role of collateral provision on the French government debt securities market
AbstractWe examine the effects of collateral provision as a potential channel between funding liquidity tensions and the scarcity of market liquidity. This channel consists in transferring the credit risk associated with refinancing operations between financial institutions to market participants that bear new liquidity risk on the market associated with collateral. In particular, we address the issue of the liquidity of the French government debt securities market, since these assets are used as collateral both in the open market operations of the ECB and on the interbank market. We use a time-varying transition probability (TVTP) VAR model considering both the monetary policy cycle and the cycle of French treasury auctions. We highlight the existence of a specific regime in which monetary policy neutrality is not verified on the market for French bonds. Moreover, the existence of conventional and unconventional regimes leads to asymmetries in monetary policy implementation.
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Bibliographic InfoPaper provided by Banque de France in its series Working papers with number 278.
Length: 53 pages
Date of creation: 2010
Date of revision:
Monetary policy; collateral; liquidity; volatility; French bond market.;
Find related papers by JEL classification:
- G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-08 (All new papers)
- NEP-CBA-2010-05-08 (Central Banking)
- NEP-MAC-2010-05-08 (Macroeconomics)
- NEP-MON-2010-05-08 (Monetary Economics)
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- repec:ner:dauphi:urn:hdl:123456789/11155 is not listed on IDEAS
- Avouyi-Dovi, Sanvi & Idier, Julien, 2012.
"The impact of unconventional monetary policy on the market for collateral: The case of the French bond market,"
Journal of Banking & Finance,
Elsevier, vol. 36(2), pages 428-438.
- Avouyi-Dovi, S. & Idier, J., 2011. "The impact of unconventional monetary policy on the market for collateral: The case of the French bond market," Working papers 339, Banque de France.
- Bank for International Settlements, 2011. "Interactions of sovereign debt management with monetary conditions and financial stability," CGFS Papers, Bank for International Settlements, number 42, October.
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