Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/193538
Authors: 
Crosignani, Matteo
Faria-e-Castro, Miguel
Fonseca, Luís
Year of Publication: 
2016
Series/Report no.: 
ESRB Working Paper Series 31
Abstract: 
We study the design of lender of last resort interventions and show that the provision of long-term liquidity incentivizes purchases of high-yield short-term securities by banks. Using a unique security-level data set, we find that the European Central Bank's three-year Long-Term Refinancing Operation incentivized Portuguese banks to purchase short-term domestic government bonds that could be pledged to obtain central bank liquidity. This "collateral trade" effect is large, as banks purchased short-term bonds equivalent to 8.4% of amount outstanding. The resumption of public debt issuance is consistent with a strategic reaction of the debt agency to the observed yield curve steepening.
Subjects: 
Lender of Last Resort
Unconventional Monetary Policy
Sovereign Debt
JEL: 
E58
G21
G28
H63
Persistent Identifier of the first edition: 
ISBN: 
978-92-95081-66-6
Document Type: 
Working Paper

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