The collateral channel of open market operations

Nuno Cassola and Francois Koulischer

Journal of Financial Stability, 2019, vol. 41, issue C, 73-90

Abstract: We propose a model of collateral choice by banks to quantify how changes in the haircut policy of the central bank affect the collateral used by banks and the funding cost of banks. We estimate the model using data on assets pledged to the European Central Bank from 2009 to 2011. Our results suggest that an increase in the haircut on low rated collateral by 5 percentage points would have reduced the use of this collateral by 10% but would have increased the average funding cost spread between high yield and low yield countries by 5% over our sample period.

Keywords: Collateral; Haircut; Central Bank; Money market (search for similar items in EconPapers)
JEL-codes: E52 E58 F36 G01 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (11)

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Related works:
Working Paper: The Collateral Channel of Open Market Operations (2016)
Working Paper: The collateral channel of open market operations (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:41:y:2019:i:c:p:73-90

DOI: 10.1016/j.jfs.2019.03.002

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