Scarce collateral, the term premium, and quantitative easing

Stephen Williamson

No 2014-8, Working Papers from Federal Reserve Bank of St. Louis

Abstract: A model of money, credit, and banking is constructed in which the differential pledgeability of collateral and the scarcity of collateralizable wealth lead to a term premium ? an upward-sloping nominal yield curve. Purchases of long-maturity government debt by the central bank are always a good idea, but for unconventional reasons. A floor system is preferred to a channel system, as a floor system permits welfare-improving asset purchases by the central bank.

JEL-codes: E4 E5 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2014-01-15
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
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Citations: View citations in EconPapers (4)

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Journal Article: Scarce collateral, the term premium, and quantitative easing (2016)
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