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Unconventional Optimal Repurchase Agreements

Author

Listed:
  • Joseph Haslag

    (University of Missouri--Columbia)

  • Chao Gu

    (University of Missouri)

Abstract

We build a model in which verifiability of private debts and timing mismatch in debt settlements lead to liquidity problem in the financial market. The central bank can respond to the liquidity problem by adopting an unconventional monetary policy that resembles repurchase agreements between the central bank and the lenders. This policy is effective if the timing mismatch is nominal (i.e., a settlement participation risk). It is ineffective if the limited participation is driven by a real shock (i.e., preference shock).

Suggested Citation

  • Joseph Haslag & Chao Gu, 2012. "Unconventional Optimal Repurchase Agreements," 2012 Meeting Papers 431, Society for Economic Dynamics.
  • Handle: RePEc:red:sed012:431
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    References listed on IDEAS

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    7. Schreft, Stacey L & Smith, Bruce D, 2002. "The Conduct of Monetary Policy with a Shrinking Stock of Government Debt," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 34(3), pages 848-882, August.
    8. Bruce Champ & Bruce D. Smith & Stephen D. Williamson, 1996. "Currency Elasticity and Banking Panics: Theory and Evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 29(4), pages 828-864, November.
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