The impact of central bank's repo balance on monetary policy transmission-evidence from Brazil

Three hypotheses arise concerning negatives impacts of central bank's repo balance on monetary policy: (i) short maturity and payments close to policy rate for repos cause a decrease in average maturity of public debt; (ii) repo balance expansions weaken the wealth channel of monetary policy; (iii) agents' expectations regarding repo expansions undermine other monetary policy instruments. This work seeks to verify the existence of evidence to support these hypotheses, resorting to VAR and impulse-response functions analysis. Evidence is found for a negative effect of repo on public debt's duration, but not for the other two hypotheses. These suggests an additional cost of resorting to repos for monetary policy execution, albeit smaller than other authors have supposed.