Money Markets, Collateral and Monetary Policy

Fiorella De Fiore, Marie Hoerova, Ciaran Rogers and Harald Uhlig ()

No 25319, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: During the financial and sovereign debt crises, euro area interbank money markets underwent dramatic changes: the share of unsecured borrowing declined throughout the euro area, while private market haircuts on sovereign bonds and bank borrowing from the European Central Bank increased in the South. We construct a quantitative general equilibrium model to evaluate the macroeconomic impact of these developments and the associated policy response. Our model features heterogeneous banks and sovereign bonds, secured and unsecured money markets, and a central bank. We compare a benchmark policy—the central bank providing collateralized lending to banks at haircuts lower than the market—to an alternative policy that maintains a constant central bank balance sheet. We show that the fall in output, investment, and capital would have been twice as high under the alternative policy. More generally, the model allows the analysis of monetary policy tools beyond interest rate policies and quantitative easing.

JEL-codes: E44 E58 (search for similar items in EconPapers)
Date: 2018-11
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-mon
Note: IFM ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Related works:
Working Paper: Money markets, collateral and monetary policy (2022)
Working Paper: Money markets, collateral and monetary policy (2019)
Working Paper: Money Markets, Collateral and Monetary Policy (2018)
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