Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/200479 
Year of Publication: 
2017
Series/Report no.: 
Bank of Canada Staff Discussion Paper No. 2017-9
Publisher: 
Bank of Canada, Ottawa
Abstract: 
The Canadian overnight repo market persistently shows signs of latent funding pressure around month-end periods. Both the overnight repo rate and Bank of Canada liquidity provision tend to rise in these windows. This paper proposes three non-mutually exclusive hypotheses to explain this phenomenon. First, month-end funding pressure may be caused by search frictions. Market participants place a premium on liquidity around month-end periods because of the confluence of a generalized liquidity preference, heightened month-end forecast uncertainty, and resultant search frictions in the repo market. Second, this funding pressure could be attributed to spillovers from the US overnight repo market. Third, month-end funding pressure might be associated with large Canadian banks' end-of-month repo adjustments. By combining market, central-bank and payments data, this paper provides evidence that the first hypothesis explains the latent funding pressure observed on the first day of the month. Using market and non-public regulatory data, this paper further argues that the second and third hypotheses are much less plausible.
Subjects: 
Interest rates
Financial markets
Monetary policy implementation
Monetary policy framework
Transmission of monetary policy
JEL: 
E41
E43
E52
E58
F36
G15
G14
G21
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
892.19 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.