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Monetary Policy with Heterogeneous Collateralized Borrowing

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  • José Suárez-Lledó
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    Abstract

    Secured debt has become a predominant form of credit. The purpose of this paper is to analyze collateral in a model of money and its interaction with monetary policy. Borrowing capacity, and ultimately consumption, is linked to the value of the asset that serves as collateral, specific to each agent. The valuation of this asset will reflect its liquidity as a collateralizable asset in contingencies. The Friedman rule is the optimal policy. For any other policy credit and the use collateral improves welfare. The Mundell-Tobin effect is not present in this model. The framework developed in this paper is highly suitable for the study of markets of asset-backed securities.

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    Bibliographic Info

    Paper provided by Barcelona Graduate School of Economics in its series Working Papers with number 374.

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    Date of creation: Jan 2009
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    Handle: RePEc:bge:wpaper:374

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    Related research

    Keywords: collateral; liquidity; money; monetary policy; asset pricing;

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    1. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," NBER Working Papers 5146, National Bureau of Economic Research, Inc.
    2. Randall Wright & Guillame Rocheteau, 2003. "Money in Search Equilibrium, in Competitive Equilibrium, and in Competitive Search Equilibrium," Levine's Bibliography 666156000000000302, UCLA Department of Economics.
    3. Tommaso Monacelli, 2006. "Optimal Monetary Policy with Collateralized Household Debt and Borrowing Constraints," NBER Working Papers 12470, National Bureau of Economic Research, Inc.
    4. Aleksander Berentsen & Cyril Monnet, 2007. "Monetary Policy in a Channel System," CESifo Working Paper Series 1929, CESifo Group Munich.
    5. Aleksander Berentsen & Guillaume Rocheteau & Shouyong Shi, 2004. "Friedman meets Hosios: efficiency in search models of money," Working Paper 0408, Federal Reserve Bank of Cleveland.
    6. Matteo Iacoviello, 2002. "House prices, borrowing constraints and monetary policy in the business cycle," Boston College Working Papers in Economics 542, Boston College Department of Economics, revised 06 Dec 2004.
    7. Aleksander Berentsen & Christopher Waller, 2005. "Optimal Stabilization Policy with Flexible Prices," CESifo Working Paper Series 1638, CESifo Group Munich.
    8. Ferraris, Leo & Watanabe, Makoto, 2008. "Collateral secured loans in a monetary economy," Journal of Economic Theory, Elsevier, vol. 143(1), pages 405-424, November.
    9. Athanasios Geromichalos & Juan M Licari & Jose Suarez-Lledo, 2007. "Monetary Policy and Asset Prices," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(4), pages 761-779, October.
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