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Endogenous Repo Cycles

Author

Listed:
  • Makoto Watanabe

    (VU Amsterdam)

  • Vyacheslav Arbuzov

    (University of Rochester)

  • Yu Awaya

    (University of Rochester)

  • Hiroki Fukai

    (Kyushu University)

Abstract

This paper presents a simple and tractable equilibrium model of repos, where collateralized credit emerges under limited commitment. We show that even if there is no time variation in fundamentals, repo markets can fluctuate endogenously over time. In our theory, repo market fragilities are associated with endogenous fluctuations in trade probabilities, collateral values, and debt limits. We show that the collateral premium of a durable asset will become the lowest right before a recession and the highest right after the recession and that secured credit is acyclical.

Suggested Citation

  • Makoto Watanabe & Vyacheslav Arbuzov & Yu Awaya & Hiroki Fukai, "undated". "Endogenous Repo Cycles," Tinbergen Institute Discussion Papers 19-019/VII, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20190019
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    Cited by:

    1. is not listed on IDEAS
    2. Kubota, So & 久保田, 荘, 2019. "Market Structure and Indeterminacy of Stationary Equilibria in a Decentralized Monetary Economy," Discussion paper series HIAS-E-84, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.

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    Keywords

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    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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