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The impact of unconventional monetary policy on the market for collateral: The case of the French bond market

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  • Avouyi-Dovi, Sanvi
  • Idier, Julien

Abstract

We consider the channel consisting in transferring the credit risk associated with refinancing operations between financial institutions to market participants. In particular, we analyze liquidity and volatility premia on 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. In our time-varying transition probability Markov-switching (TVTP-MS) model, we highlight the existence of two regimes. In one of them, which we refer to as the conventional regime, monetary policy neutrality is verified; in the other, which we dub the unconventional regime, monetary policy operations lead to volatility and liquidity premia on the collateral market. The existence of these conventional and unconventional regimes highlights some asymmetries in the conduct of monetary policy.

Suggested Citation

  • 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.
  • Handle: RePEc:eee:jbfina:v:36:y:2012:i:2:p:428-438
    DOI: 10.1016/j.jbankfin.2011.07.019
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    Cited by:

    1. Francesco Molteni, 2015. "Liquidity, Government Bonds and Sovereign Debt Crises," Working Papers 2015-32, CEPII research center.
    2. Volha Audzei, 2012. "Efficiency of Central Bank Policy During the Crisis : Role of Expectations in Reinforcing Hoarding Behavior," CERGE-EI Working Papers wp477, The Center for Economic Research and Graduate Education - Economics Institute, Prague.

    More about this item

    Keywords

    Monetary policy; Collateral; Liquidity; Volatility; French bond market;

    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; Diffusion Processes
    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods

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