Contagion in debt and collateral markets☆

• 成果类型: Article
• 署名作者: Chang, Jin-Wook; Chuan, Grace
• 署名单位: Federal Reserve System - USA; Columbia University
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2024.103600
• 发表日期: 2024
• 关键词: Collateral; Financial network; Fire sale; Systemic risk

摘要

This paper investigates contagion in financial networks through collateralized debt and its effects on social welfare. Our model incorporates contagion through both counterparty debt exposures and endogenous collateral asset pricing. We find that collateral mitigates counterparty exposures and reduces social inefficiency when faced with negative shocks, but not always. We also show the importance of the interaction between the level of collateral and network structure as contagion can change dramatically depending on that interaction. The model also provides policy-relevant collateral-to-debt ratios (haircuts) to attain robust and fully insulated macroprudential states for any network and also the optimal collateral ratio to attain full insulation for a specific network.