Central Bank Purchases of Private Assets

Stephen Williamson

No 208, 2014 Meeting Papers from Society for Economic Dynamics

Abstract: A model is constructed in which consumers and banks have incentives to fake the quality of collateral. Conventional central banking policy can exacerbate these problems, in that lower nominal interest rates make asset prices higher, which makes faking collateral more profitable, thus increasing haircuts and interest rate differentials. Central bank purchases of private mortgages can increase welfare by bypassing incentive problems associated with private banks, increasing asset prices, and relaxing collateral constraints. However, this may exacerbate incentive problems in the mortgage market.

Date: 2014
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cta, nep-dge and nep-mon
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Citations: View citations in EconPapers (6)

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