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A theory of collateral for the lender of last resort

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dc.contributor.coauthorChoi, Dong Beom
dc.contributor.coauthorSantos, Joao A. C.
dc.contributor.departmentN/A
dc.contributor.kuauthorYorulmazer, Tanju
dc.contributor.kuprofileFaculty Member
dc.contributor.schoolcollegeinstituteGraduate School of Social Sciences and Humanities
dc.contributor.yokid328768
dc.date.accessioned2024-11-09T23:15:00Z
dc.date.issued2021
dc.description.abstractWe 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.
dc.description.indexedbyWoS
dc.description.indexedbyScopus
dc.description.issue4
dc.description.openaccessNO
dc.description.publisherscopeInternational
dc.description.sponsorshipInstitute of Management Research at Seoul National University The authors thank Christine Parlour, the editor, and two anonymous referees, for valuable insights. They also thank Viral Acharya, Patrick Bolton, Charles Calomiris, Elena Carletti, Jean-Edouard Colliard, Jason Roderick Donaldson, Douglas Gale, Itay Goldstein, Piero Gottardi, Denis Gromb, Barney Hartman-Glaser, Florian Heider, Charles Kahn, Hankil Kang, Francois Koulischer, John Kuong, Benjamin Lester, David Martinez Miera, Emanuel Moench, Martin Oehmke, Rafael Repullo, Hyun Shin, Javier Suarez, Sergio Vicente, Vladimir Vladimirov, Ansgar Walther, and audiences at Warwick, Bank of Spain, CEMFI, Bundesbank, ECB, University of Amsterdam, Koc University, Norges Bank, New York Fed/NYU FI Conference, FIRS, EFA, CICF, AKFA, and Baffi Carefin Conference for useful comments. D.B.C. appreciates support from the Institute of Management Research at Seoul National University. The views stated herein are those of the authors and are not necessarily the views of the Federal Reserve Bank of New York or the Federal Reserve System.
dc.description.volume25
dc.identifier.doi10.1093/rof/rfab002
dc.identifier.eissn1573-692X
dc.identifier.issn1572-3097
dc.identifier.quartileQ1
dc.identifier.scopus2-s2.0-85107743887
dc.identifier.urihttp://dx.doi.org/10.1093/rof/rfab002
dc.identifier.urihttps://hdl.handle.net/20.500.14288/10255
dc.identifier.wos685219800002
dc.keywordsCentral bank
dc.keywordsLiquidity
dc.keywordsMacroprudential policy
dc.keywordsExternality
dc.keywordsInterbank market
dc.keywordsLending facilities
dc.keywordsDeposit insurance
dc.keywordsLiquidity
dc.keywordsMarket
dc.keywordsModel
dc.keywordsRisk
dc.keywordsAct
dc.languageEnglish
dc.publisherOxford Univ Press
dc.sourceReview of Finance
dc.subjectBusiness enterprises
dc.subjectFinance
dc.subjectEconomics
dc.titleA theory of collateral for the lender of last resort
dc.typeJournal Article
dspace.entity.typePublication
local.contributor.authorid0000-0002-7112-6829
local.contributor.kuauthorYorulmazer, Tanju

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