Collateral and QE
In this paper Ferrero and al. analyse the impact of QE on asset prices through their role as collateral on the interbank market:
Differently than a preferred-habit model, the imperfect substitutability between assets is not driven by investors preferences but by assets’ role in the exchange process and by their instrinsic pledgeability properties.
The collateral channel of unconventional monetary policy
Authors: Giuseppe Ferrero, Michele Loberto and Marcello Miccoli
From: Banca d’ Italia
Using security-level data by Portuguese banks Crosignani and al. find that the LTRO maturity extension motivated banks to buy Portuguese government bonds and pledge them as collateral for central bank liquidity. This “collateral trade” effect is quite large and contributed to the steepening of the peripheral sovereign yield curves.
The (Unintended?) Consequences of the Largest Liquidity Injection Ever
Authors: Matteo Crosignani, Miguel Faria-e-Castro, Luís Fonseca
From: Federal Reserve Board – FRB St. Louis – London Business School
What type of collateral policy during crises
Choi and al. analyze the optimal lending and collateral policy of a central bank during periods of crises. They find that contrary to what is commonly believed it might be optimal for a central bank to lend against a low-quality collateral improving the pool of collateral in funding markets and unlocking frozen markets.
A Theory of Collateral for the Lender of Last Resort
Authors: Dong Beom Choi, João A. C. Santos, Tanju Yorulmazer
From: Federal Reserve Bank of New York – University of Amsterdam
Our main result is that an increase in the share of illiquid assets pledged was associated with greater resilience of lending activity. More concretely, a one standard deviation increase in the volume of illiquid collateral pledged with the Eurosystem corresponded to a 0.6{5e7f07e14add20b2e04f4edb85a447d3cd8121fc27b809645e9fed603c22cc5c} increase in loans to the economy.
Illiquid Collateral and Bank Lending during the European Sovereign Debt Crisis
Authors: Jean Barthélemy, Vincent Bignon, Benoit Nguyen
From: Banque de France
