Scarce collateral and bank reserves
If collateral for bank loans is scarce and, if as a result, access to secured loans is restricted, the allocation of resources is inefficient. In anticipation of future borrowing constraints, individuals over-invest in collateralized types of capital, and consume and invest inefficiently low levels while they are borrowing constrained. The dual counterpart of this misallocation of resources is inefficiently low interest rates. In this situation, bank reserves play a positive welfare role by adding liquidity to the economy and by increasing not only bank lending rates, but also, paradoxically, bank deposit rates. As a result, in economies with scarce collateral the optimal reserves-requirement ratio is positive.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Williamson, Stephen D, 1987. "Financial Intermediation, Business Failures, and Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1196-1216, December.
- S. Rao Aiyagari, 1994.
"Uninsured Idiosyncratic Risk and Aggregate Saving,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 109(3), pages 659-684.
- Douglas W. Diamond & Philip H. Dybvig, 2000.
"Bank runs, deposit insurance, and liquidity,"
Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
- Faig, Miquel, 2000.
"The Optimal Structure of Liquidity Provided by a Self-Financed Central Bank,"
Journal of Money, Credit and Banking,
Blackwell Publishing, vol. 32(4), pages 746-65, November.
- Miquel Faig, 1999. "The Optimal structure of Liquidity Provided by a Self Financed Central Bank," Working Papers faig-99-01, University of Toronto, Department of Economics.
- Faig, Miquel, 2000.
"Money with Idiosyncratic Uninsurable Returns to Capital,"
Journal of Economic Theory,
Elsevier, vol. 94(2), pages 218-240, October.
- Miquel Faig, 2000. "Money With Idiosyncratic Uninsurable Returns To Capital," Working Papers faig-00-01, University of Toronto, Department of Economics.
- Javier Diaz-Gimenez & Edward C. Prescott & Terry J. Fitzgerald & Fernando Alvarez, 1992.
"Banking in computable general equilibrium economies,"
153, Federal Reserve Bank of Minneapolis.
- Diaz-Gimenez, Javier & Prescott, Edward C. & Fitzgerald, Terry & Alvarez, Fernando, 1992. "Banking in computable general equilibrium economies," Journal of Economic Dynamics and Control, Elsevier, vol. 16(3-4), pages 533-559.
- Bewley, Truman, 1983.
"A Difficulty with the Optimum Quantity of Money,"
Econometric Society, vol. 51(5), pages 1485-504, September.
- Duncan K. Foley & Martin F. Hellwig, 1975.
"Asset Management with Trading Uncertainty,"
Review of Economic Studies,
Oxford University Press, vol. 42(3), pages 327-346.
- Woodford, Michael, 1990. "Public Debt as Private Liquidity," American Economic Review, American Economic Association, vol. 80(2), pages 382-88, May.
- Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
- Holmstrom, B & Tirole, J, 1996.
"Private and Public Supply of Liquidity,"
96-21, Massachusetts Institute of Technology (MIT), Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:eee:jmacro:v:30:y:2008:i:4:p:1723-1737. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.