We empirically investigate the relationship between the Japanese general collateral (GC) repurchase agreement (repo) and uncollateralized call rates before, during, and emerging from the recent financial crisis. Unlike the US and many other countries, the Japanese GC repo rate has been higher than the uncollateralized call rate, despite the former being secured by collateral. Moreover, during the financial crisis, the Japanese GC repo rate rose, whereas the US Treasury GC repo rate decreased. The results of our empirical analysis suggest that segmentation between the Japanese repo and call markets is a key factor explaining these features. The analysis also reveals how much changes in the policy target rate and the current account balances at the Bank of Japan, institutional changes in the payment system, and various policy and market events affected both the repo and call rates.
Keywords: repurchase agreement (repo); call markets; monetary policy implementation; financial crisis; market segmentation; vector error correction model; threshold ARCH
Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.