Scarce collateral, the term premium, and quantitative easing
AbstractA model of money, credit, and banking is constructed in which the differential pledgeability of collateral and the scarcity of collateralizable wealth lead to a term premium — an upward-sloping nominal yield curve. Purchases of long-maturity government debt by the central bank are always a good idea, but for unconventional reasons. A floor system is preferred to a channel system, as a floor system permits welfare-improving asset purchases by the central bank.
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Bibliographic InfoPaper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2014-8.
Length: 36 pages
Date of creation: 15 Jan 2014
Date of revision:
Find related papers by JEL classification:
- E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
- E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
This paper has been announced in the following NEP Reports:
- NEP-ALL-2014-04-05 (All new papers)
- NEP-DGE-2014-04-05 (Dynamic General Equilibrium)
- NEP-MAC-2014-04-05 (Macroeconomics)
- NEP-MON-2014-04-05 (Monetary Economics)
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