Collateral framework: liquidity premia and multiple equilibria
| Autor: | Yvan Lengwiler, Athanasios Orphanides |
|---|---|
| Jazyk: | angličtina |
| Rok vydání: | 2021 |
| Předmět: |
Economics and Econometrics
Haircut Collateral media_common.quotation_subject jel:E62 collateral monetary policy yields jel:E43 Monetary economics cliff effect Credit rating Accounting Debt Economics default premium multiple equilibria ddc:330 E58 liquidity premium government finance media_common Bond jel:E58 Liquidity premium Market liquidity Default E62 Finance E43 |
| Popis: | Central banks normally accept debt of their own governments as collateral in liquidity operations without reservations. This gives rise to a valuable liquidity premium that reduces the cost of government finance. The ECB is an interesting exception in this respect. It relies on external assessments of the creditworthiness of its member states, such as credit ratings, to determine eligibility and the haircut it imposes on such debt. The authors show how such features in a central bank's collateral framework can give rise to cliff effects and multiple equilibria in bond yields and increase the vulnerability of governments to external shocks. This can potentially induce sovereign debt crises and defaults that would not otherwise arise. |
| Databáze: | OpenAIRE |
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