Two Monetary Tools: Interest-Rates and Haircuts

Nicolae B. Garleanu, Lasse Pedersen and Adam Ashcraft ()
Additional contact information
Nicolae B. Garleanu: University of California, Berkeley

No 1102, 2010 Meeting Papers from Society for Economic Dynamics

Abstract: We study a production economy with multiple sectors financed by issuing securities to agents who face capital constraints. Binding capital constraints propagate business cycles, and a reduction of the interest rate can increase the required return of high-haircut assets since it can increase the shadow cost of capital for constrained agents. The required return can be lowered by easing funding constraints through lowering haircuts. To assess empirically the power of the haircut tool, we study the natural experiment of the introduction of the legacy Term Asset-Backed Securities Loan Facility (TALF). We estimate that the TALF program reduced required returns by more than 0.70% using a triple difference-in-difference regression. Further, unique survey evidence suggests the effect could be more than 3% and provides broader evidence on the demand sensitivity to haircuts.

Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (71)

Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2010/paper_1102.pdf (application/pdf)

Related works:
Chapter: Two Monetary Tools: Interest Rates and Haircuts (2011)
Working Paper: Two Monetary Tools: Interest Rates and Haircuts (2010)
Working Paper: Two Monetary Tools: Interest Rates and Haircuts (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:red:sed010:1102

Access Statistics for this paper

More papers in 2010 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().