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The Collateral Policy of Central Banks - An Analysis Focusing on the Eurosystem

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  • Christopher Weber

Abstract

This dissertation was written by Christopher Weber during his time as a research assistant at the Center for Economic Studies (CES) at the Ludwig-Maximilians-Universität (LMU) Munich. It was handed in at the department of Economics at the LMU Munich in July 2016. The goal of the thesis is to establish the configuration of collateral policy as a tool of central bank policies in pursuit of different objectives, and to present collateral policies in practice, as well as impact and effects of collateral policy. The thesis consists of three parts and nine chapters. The first part discusses the role of collateral in central bank policy. Possible tasks and objectives of central banks are historically deduced in order to then integrate the configuration of collateral policy into the system of objectives. Collateral policy emerges as of relevance towards all central bank objectives. As a result, a normative framework for the role of collateral policy is developed. In the second part, practical collateral policy measures are presented along the lines of this framework. The focus is on the collateral policy of the Eurosystem, which is presented in detail. It has been intensified with respect to several central bank objectives throughout the financial and the European debt crisis. A comparison is made to historical collateral policy measures, as well as the configuration of the collateral frameworks at the Fed, the Bank of England and the Bank of Japan during the recent crisis years. The third part starts with a theoretical foundation of the impact and transmission process of collateral policy within the system of objectives of a central bank. Collateral policy is therefore differentiated into haircut policy and quantity policy and contrasted to classical interest rate policy. The optimal collateral policy with respect to distinct central bank objectives is derived.

Suggested Citation

  • Christopher Weber, 2017. "The Collateral Policy of Central Banks - An Analysis Focusing on the Eurosystem," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 72, April.
    • Handle: RePEc:ces:ifobei:72
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    References listed on IDEAS

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    1. Nikolay Hristov & Oliver Hülsewig & Thomas Siemsen & Timo Wollmershäuser, 2014. "Smells Like Fiscal Policy? Assessing the Potential Effectiveness of the ECB's OMT Program," CESifo Working Paper Series 4628, CESifo.
    2. Issing,Otmar & Gaspar,Vitor & Angeloni,Ignazio & Tristani,Oreste, 2001. "Monetary Policy in the Euro Area," Cambridge Books, Cambridge University Press, number 9780521788885, Enero-Abr.
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    4. Clemens Jobst, 2009. "Monetary Policy Implementation during the Crisis in 2007 to 2008," Monetary Policy & the Economy, Oesterreichische Nationalbank (Austrian Central Bank), issue 1, pages 53-77.
    5. Jokivuolle, Esa & Peura, Samu, 2000. "A model for estimating recovery rates and collateral haircuts for bank loans," Research Discussion Papers 2/2000, Bank of Finland.
    6. Carmen M. Reinhart & Kenneth S. Rogoff, 2013. "Shifting Mandates: The Federal Reserve's First Centennial," American Economic Review, American Economic Association, vol. 103(3), pages 48-54, May.
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    More about this item

    JEL classification:

    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F45 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Macroeconomic Issues of Monetary Unions
    • G01 - Financial Economics - - General - - - Financial Crises
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management

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