Endogenous Repo Cycles

Makoto Watanabe, Vyacheslav Arbuzov, Yu Awaya and Hiroki Fukai
Additional contact information
Vyacheslav Arbuzov: University of Rochester
Yu Awaya: University of Rochester
Hiroki Fukai: Kyushu University

No 19-019/VII, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: 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: C73 E30 E50 (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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Related works:
Working Paper: Endogenous Repo Cycles (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20190019

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