What explains month-end funding pressure in Canada? / by Christopher S. Sutherland.: 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.
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| Department/Agency | Bank of Canada. |
|---|---|
| Title | What explains month-end funding pressure in Canada? / by Christopher S. Sutherland. |
| Series title | Bank of Canada staff discussion paper, 1914-0568 ; 2017-9 |
| Publication type | Series - View Master Record |
| Language | [English] |
| Format | Electronic |
| Electronic document | |
| Note(s) | "June 2017." Includes bibliographical references (p. 37-39). Includes abstract in French. |
| Publishing information | [Ottawa] : Bank of Canada, 2017. |
| Author / Contributor | Sutherland, Christopher S. |
| Description | iii, 62 p. : charts |
| Catalogue number |
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| Subject terms | Capital markets Interest rates Monetary policy |
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