The results of the testing over the first year suggest that the operations have been successful working with IOER to establish a floor for the level of money market rates. Our analysis has found that, offered at a spread of 20 basis points to the IOER rate, ON RRPs have kept overnight repo rates above where they would otherwise have been, in part by influencing the bargaining power of our counterparties. All of the Desk’s eligible RRP counterparty types participate in the operations, with money funds accounting for the largest share of take-up. Take-up generally increases when the spread between market rates and the ON RRP offered rate narrows. Take-up also rises substantially around quarter- and year-end financial reporting dates, when some money market participants’ access to other overnight investments is more limited. To further examine how ON RRPs might best be structured to supplement IOER in controlling the fed funds rate while limiting the potential for unintended effects in financial markets, the FOMC recently directed the Desk to make several changes to the design of its ON RRP operations.
The nineties, in fact, saw many governments implementing pension reform initiatives, generally based on the three-pillar approach advocated by the World Bank. Under this approach, individuals may have up to three different sources of revenue during retirement, namely a basic state pension, the balance accumulated in a mandatory pension account and voluntary saving arrangements. A number of international studies show that the replacement of pay-as-you-go pension regimes by funded systems provides more incentives for private saving, and reduces the scope for tax evasion by linking contributions paid into the system directly to the benefits received. This contributes to increased investment and augments the productive base, thereby facilitating the financing of social security expenditure commitments. Apart from specific reforms in the social security system itself, an improvement in the fiscal position would have an overall positive macroeconomic effect, compensating in part for the addition in aggregate demand brought about by ageing. The lower absorption of resources by the State could also lead to a higher average level of productivity and to an improvement in the country’s balance of payments. Productive capacity would also be enhanced if the State creates fiscal and other incentives for individuals to provide for their own needs after retirement, leading to an increase in the household saving rate and, consequently, also to a faster accumulation of capital. Fiscal consolidation will, however, only solve part of the problems created by population ageing. The negative supply shock caused by this phenomenon must also be countered by a positive shock.