Endogenous Repo Cycles
Yu Awaya (),
Hiroki Fukai and
Makoto Watanabe ()
No 7518, CESifo Working Paper Series from CESifo
This paper presents a simple and tractable equilibrium model of repos, where collateralized credit emerges under limited commitment. We show that even if there is no time variation in fundamentals, repo markets can fluctuate endogenously over time. In our theory, repo market fragilities are associated with endogenous fluctuations in trade probabilities, collateral values, and debt limits. We show that the collateral premium of a durable asset will become the lowest right before a recession and the highest right after the recession, and that secured credit is acyclical.
Keywords: collateral; search; endogenous credit market fluctuations (search for similar items in EconPapers)
JEL-codes: E30 E50 C73 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-dge and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7518
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