XXV Edition

1-2 December 2016"

A Public Broadcasting Service: Information Revelation through Central Bank Securities Lending Operations

Bulusu Narayan, Bank of Canada

The effectiveness of central bank securities lending operations in smoothing financial market frictions is commonly attributed to the resulting temporary increase in supply of the underlying assets. In this paper, I show evidence for a new channel -- their effectiveness also arises from the information they reveal to market participants about demand and supply conditions for these assets, which usually trade in opaque markets. I use a unique, trade-by-trade dataset of special repo transactions involving Government of Canada bonds to identify that the information revealed by an unexpected lending operation conducted by the Bank of Canada leads to a median drop of 3.1 basis points in the special repo rate of the bond the next day.

Area: Monetary Policy and Central Banking

Keywords: Central bank operations, OTC markets, information asymmetry

Il paper è coperto da copyright.

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