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Monetary policy disconnect

Author

Listed:
  • Angelo Ranaldo
  • Benedikt Ballensiefen
  • Hannah Winterberg

Abstract

We analyze and quantify how two forms of segmentation lead to the monetary policy disconnect. To do this, we study the monetary policy transmission through the main short-term funding market, the repurchase agreement (repo) market. First, the lending rates of banks with access to the central bank's deposit facility are less responsive to the monetary policy target rate. Second, rates of repos secured by assets eligible Quantitative Easing programs diverge more from the target rate. We also find that both forms of segmentation add to one another, suggesting an amplifying effect in weakening monetary policy transmission.

Suggested Citation

  • Angelo Ranaldo & Benedikt Ballensiefen & Hannah Winterberg, 2020. "Monetary policy disconnect," Working Papers on Finance 2003, University of St. Gallen, School of Finance.
    • Handle: RePEc:usg:sfwpfi:2020:03
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    References listed on IDEAS

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    More about this item

    Keywords

    Interest rate pass-through; Monetary policy; Market segmentation; Short-term interest rates; Repo;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • 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
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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