A theory of repurchase agreements, collateral re-use, and repo intermediation
Piero Gottardi (),
Vincent Maurin and
Cyril Monnet ()
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Vincent Maurin: Stockholm School of Economics
Review of Economic Dynamics, 2019, vol. 33, 30-56
We show that repurchase agreements (repos) arise as the instrument of choice to borrow in a competitive model with limited commitment. The repo contract traded in equilibrium provides insurance against fluctuations in the asset price in states where collateral value is high and maximizes borrowing capacity when it is low. Haircuts increase both with counterparty risk and asset risk. In equilibrium, lenders choose to re-use collateral. This increases the circulation of the asset and generates a â€œcollateral multiplierâ€ effect. Finally, we show that intermediation by dealers may endogenously arise in equilibrium, with chains of repos among traders. (Copyright: Elsevier)
Keywords: Repos; Default; Collateral re-use; Intermediation; Collateral multiplier (search for similar items in EconPapers)
JEL-codes: D53 G23 (search for similar items in EconPapers)
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Working Paper: Online Appendix to "A theory of repurchase agreements, collateral re-use, and repo intermediation" (2019)
Working Paper: A Theory of Repurchase Agreements, Collateral Re-use, and Repo Intermediation (2017)
Working Paper: A theory of repurchase agreements, collateral re-use, and repo intermediation (2017)
Working Paper: A Theory of Repurchase Agreement, Collateral Re-use, and Repo Intermediation (2016)
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