Researcher:
Yorulmazer, Tanju

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Faculty Member

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Tanju

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Yorulmazer

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Yorulmazer, Tanju

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Now showing 1 - 2 of 2
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    Publication
    A theory of collateral for the lender of last resort
    (Oxford Univ Press, 2021) Choi, Dong Beom; Santos, Joao A. C.; N/A; Yorulmazer, Tanju; Faculty Member; Graduate School of Social Sciences and Humanities; 328768
    We consider a macroprudential approach to analyze the optimal lending policy for the central bank, focusing on spillover effects that policy exerts on money markets. Lending against high-quality collateral protects central banks against losses, but can adversely affect liquidity creation in markets since high-quality collateral gets locked up with the central bank rather than circulating in markets. Lending against low-quality collateral creates counterparty risk but can improve liquidity in markets. We illustrate the optimal policy incorporating these trade-offs. Contrary to what is generally accepted, lending against high-quality collateral can have negative effects, whereas it may be optimal to lend against low-quality collateral.
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    PublicationOpen Access
    Watering a lemon tree: heterogeneous risk taking and monetary policy transmission
    (Elsevier, 2020) Choi, D.B.; Eisenbach, T.M.; Department of Economics; Yorulmazer, Tanju; Department of Economics; College of Administrative Sciences and Economics
    We build a general equilibrium model with financial frictions that impede monetary policy transmission. Agents with heterogeneous productivity can increase investment by levering up, which increases liquidity risk due to maturity transformation. In equilibrium, more productive agents choose higher leverage than less productive agents, which exposes the more productive agents to greater liquidity risk and makes their investment less responsive to interest rate changes. When monetary policy reduces interest rates, aggregate investment quality deteriorates, which blunts the monetary stimulus and decreases asset liquidation values. This, in turn, reduces loan demand, decreasing the interest rate further and generating a negative spiral. Overall, the allocation of credit is distorted and monetary stimulus can become ineffective even with significant interest rate drops.