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Articles (2020), Journal of Financial Economics, 137 (3), pp. 837-856

The scarcity effect of QE on repo rates: Evidence from the euro area

ARRATA William, NGUYEN Benoit, RAHMOUNI ROUSSEAU Imène, VARI Miklos

Most short-term interest rates in the euro area are below the European Central Bank deposit facility rate, the rate at which the central bank remunerates banks for excess reserves. This coincided with the start of the Public Sector Purchase Program (PSPP) launched in March 2015. In this paper, we explore empirically the interactions between the PSPP and repo rates. Using proprietary data from PSPP purchases and repo transactions for specific (“special”) securities, we assess the scarcity channel of PSPP and its impact on repo rates. We estimate that purchasing 1% of a bond outstanding is associated with a decline of its repo rate of 0.78 basis points. Lien vers l'article

ARRATA, W., NGUYEN, B., RAHMOUNI ROUSSEAU, I. and VARI, M. (2020). The scarcity effect of QE on repo rates: Evidence from the euro area. Journal of Financial Economics, 137(3), pp. 837-856.