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Scarce collateral, the term premium, and quantitative easing

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  • Stephen D. Williamson

Abstract

A 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.

Suggested Citation

  • Stephen D. Williamson, 2014. "Scarce collateral, the term premium, and quantitative easing," Working Papers 2014-8, Federal Reserve Bank of St. Louis.
  • Handle: RePEc:fip:fedlwp:2014-008
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    More about this item

    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

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