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An assessment of the Bank of Canada's term PRA facility

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  • Enenajor, Emanuella
  • Sebastian, Alex
  • Witmer, Jonathan

Abstract

This paper empirically assesses the effectiveness of the Bank of Canada's term Purchase and Resale Agreement (PRA) facility in reducing funding pressures, as measured by the CDOR-OIS spread. It examines the behaviour of this spread around both term PRA announcement dates and term PRA operation dates, using an event-study methodology to control for developments in other money markets as well as proxies for Canadian banking sector credit risk. Overall, there is robust evidence that the term PRA announcements reduced bank funding costs at both 1-month and 3-month terms, whereas we find no evidence of an impact from term PRA operations.

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  • Enenajor, Emanuella & Sebastian, Alex & Witmer, Jonathan, 2012. "An assessment of the Bank of Canada's term PRA facility," The North American Journal of Economics and Finance, Elsevier, vol. 23(1), pages 123-143.
    • Handle: RePEc:eee:ecofin:v:23:y:2012:i:1:p:123-143
    DOI: 10.1016/j.najef.2011.11.005
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    Cited by:

    1. Nellie Zhang, 2012. "Estimating the Demand for Settlement Balances in the Canadian Large Value Transfer System," Staff Working Papers 12-15, Bank of Canada.
    2. Jeremy Kronick, 2016. "Looking for Liquidity -- Banking and Emergency Liquidity Facilities," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 445, February.
    3. Yang, Hsin-Feng & Liu, Chih-Liang & Chou, Ray Yeutien, 2014. "Interest rate risk propagation: Evidence from the credit crunch," The North American Journal of Economics and Finance, Elsevier, vol. 28(C), pages 242-264.
    4. Nellie (Yinan) Zhang, 2019. "Estimating the demand for settlement balances in the Canadian Large Value Transfer System: How much is too much?," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(2), pages 735-762, May.
    5. Bank for International Settlements, 2015. "Central bank operating frameworks and collateral markets," CGFS Papers, Bank for International Settlements, number 53, december.
    6. Grahame Johnson & Eric Santor, 2013. "Central Bank Liquidity Provision and Core Funding Markets," RBA Annual Conference Volume (Discontinued), in: Alexandra Heath & Matthew Lilley & Mark Manning (ed.),Liquidity and Funding Markets, Reserve Bank of Australia.
    7. Bank for International Settlements, 2019. "Unconventional monetary policy tools: a cross-country analysis," CGFS Papers, Bank for International Settlements, number 63, december.
    8. James Chapman & H. Evren Damar, 2015. "Shock Transmission Through International Banks: Canada," Technical Reports 105, Bank of Canada.

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    More about this item

    Keywords

    Central bank liquidity facilities; Interbank spreads;

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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