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What explains month-end funding pressure in Canada?: FB3-6/2017-9E-PDF
"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"--Abstract, p. ii.
|Department/Agency||Bank of Canada.|
|Title||What explains month-end funding pressure in Canada?|
|Series Title||Bank of Canada staff discussion paper,|
|Publication Type||Series - View Master Record|
|Electronic Document|| |
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|Number of Pages||iii, 62 p. :|
|Subject Terms||Capital markets, Interest rates, Monetary policy|
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