Bank of Canada paper models repo market collapse


A working paper published by the Bank of Canada on June 21 produces a model of repo markets that shows even a repo market with safe bonds can collapse, but this can be prevented by central bank intervention.

The author, Hajime Tomura, shows that a situation where cash investors withdraw their money from repo markets can cause dealers to sell their bonds in search of liquidity, causing a collapse. The paper finds that a central bank can prevent the collapse by offering lending to dealers, or by

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