The Price of Money: How Collateral Policy Affects the Yield Curve

Kjell Nyborg and Jiri Woschitz
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Jiri Woschitz: University of Zurich

No 21-74, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: Central-bank collateral policy governs the convertibility of assets into central-bank money provided directly by the central bank. Focusing on government bonds, we develop clean identification of variation in such convertibility by exploiting differential treatment of same-country government bonds in the euro area. Combining difference-in-differences analysis with yield-curve modeling on four separate events, we show that reduced convertibility lifts yields, but with the effect tapering off at longer maturities. Our findings imply that central-bank money is priced in the market and that a central bank can move and shape the yield curve through collateral policy.

Keywords: Yield curve; central bank; collateral policy; monetary policy; haircuts; repo; asset prices; liquidity; central-bank money; government bonds (search for similar items in EconPapers)
JEL-codes: E43 E52 G12 (search for similar items in EconPapers)
Pages: 67 pages
Date: 2021-11
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec, nep-fmk, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp2174

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