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A Theory of Repurchase Agreements, Collateral Re-use, and Repo Intermediation

Piero Gottardi (), Vincent Maurin and Cyril Monnet ()

No 6579, CESifo Working Paper Series from CESifo Group Munich

Abstract: 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 "collateral multiplier" effect. Finally, we show that intermediation by dealers may endogenously arise in equilibrium, with chains of repos among traders.

Keywords: repos; collateral multiplier; limited commitment; intermediation (search for similar items in EconPapers)
JEL-codes: G19 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-dge and nep-ias
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5) Track citations by RSS feed

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Related works:
Journal Article: A theory of repurchase agreements, collateral re-use, and repo intermediation (2019) Downloads
Working Paper: A theory of repurchase agreements, collateral re-use, and repo intermediation (2017) Downloads
Working Paper: A Theory of Repurchase Agreement, Collateral Re-use, and Repo Intermediation (2016) Downloads
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