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Reverse repo is where money goes to die 24 hours at a time. It isn't the opposite of QE because it is a 24 hour operation that reverses at the end. But string
by testfoobar 5y ago
Reverse repo is where money goes to die 24 hours at a time. It isn't the opposite of QE because it is a 24 hour operation that reverses at the end. But string a lot of 24 hours together and you get something that behaves like Quantitative Tightening during the duration.
- qeternity 5y agoExcept that it’s opt in based on liquidity needs, which is very different than tightening.
- testfoobar 5y agoIt isn't exactly tightening. But the RRP facility does drain liquidity in 24 hour segments. It presents an interesting risk. Here is a quote from a paper at the Federal Reserve itself from 2015: https://www.federalreserve.gov/econresdata/feds/2015/files/2015010pap.pdf https://www.federalreserve.gov/econresdata/feds/2015/files/2... "However, a facility that could allow a very rapid and unexpected expansion of ON RRP might exacerbate disruptive flight-to-quality flows during a period of financial stress and thus could undermine financial stability. Market observers and policymakers both have described such risks. For example, the Minutes of the June 2014 FOMC meeting state that “[m]ost participants expressed concerns that in times of financial stress, the facility’s counterparties could shift investments toward the facility and away from financial and nonfinancial corporations, possibly causing disruptions in funding that could magnify the stress” (FOMC 2014a). "