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Shocking interest rate floors
Auteur(s)
Canetg, Fabio
Maison d'édition
Neuchâtel Université de Neuchâtel IRENE
Date de parution
2019
Résumé
We analyze central bank debt as a tool to control money market rates. We show in a theoretical model that the money market rate increases with the volume of, and yield on, central bank debt. Moreover, issuing central bank debt implements an interest rate floor, similar to paying interest on reserves. We then exploit the unique institutional setting of a Swiss debt security program to identify the dynamic causal effects of two orthogonal shocks through heteroscedasticity. The money market rate shock has modest effects on other financial market variables. The expectation shock causes a strong and persistent appreciation of the Swiss franc, a decline in stock prices, a decline in long-term interest rates, and a rise in corporate bond risk premia. The two shocks explain up to 80% of the forecast-error variance in these variables.
Identifiants
Autre version
https://ideas.repec.org/p/irn/wpaper/19-02.html
Type de publication
Resource Types::text::working paper
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