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The (Other) Deleveraging

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  • Manmohan Singh
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    Abstract

    Deleveraging has two components--shrinking of balance sheets due to increased haircuts/shedding of assets, and the reduction in the interconnectedness of the financial system. We focus on the second aspect and show that post-Lehman there has been a significant decline in the interconnectedness in the pledged collateral market between banks and nonbanks. We find that both the collateral and its associated velocity are not rebounding as of end-2011 and still about $4-5 trillion lower than the peak of $10 trillion as of end-2007. This paper updates Singh (2011) and we use this data to compare with the monetary aggregates (largely due to QE efforts in US, Euro area and UK), and discuss the overall financial lubrication that likely impacts the conduct of global monetary policy.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/179.

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    Length: 22
    Date of creation: 01 Jul 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/179

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    Related research

    Keywords: Hedge funds; Banks; Debt reduction; Liquidity; Monetary aggregates; Nonbank financial sector; collateral; hedge; financial system; hedge fund; financial markets; financial stability; money market; bonds; financial institutions; financial statements; financial sector; international financial markets; financial services; institutional money market mutual funds; money market funds; financial sector research; money market mutual funds; financial intermediaries; financial economics;

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    1. Gary Gorton & Andrew Metrick, 2009. "Securitized Banking and the Run on Repo," Yale School of Management Working Papers amz2358, Yale School of Management, revised 01 Sep 2009.
    2. Arvind Krishnamurthy & Stefan Nagel & Dmitry Orlov, 2012. "Sizing Up Repo," NBER Working Papers 17768, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Renata Karkowska, . "The empirical analysis of dynamic relationship between financial intermediary connections and market return volatility," Faculty of Management Working Paper Series, University of Warsaw, Faculty of Management.

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