Collateral quality and intervention traps *

• 成果类型: Article
• 署名作者: Lee, Michael Junho; Neuhann, Daniel
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - New York; University of Texas System; University of Texas Austin
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2022.10.005
• 发表日期: 2023
• 页码: 159-171
• 关键词: Collateral; liquidity; adverse selection; Credit market interventions; financial fragility

摘要

What determines the supply of good collateral? We study a dynamic model in which bor-rowers must exert effort to maintain collateral quality and markets become illiquid when average quality is too low. Average quality grows quickly when it is high initially, but dete-riorates or grows slowly otherwise. As such, even long-run market conditions are sensitive to a wide array of fundamental and non-fundamental shocks. Recoveries from illiquidity can occur, but only if funding is inefficiently rationed for some time. Policymakers without commitment may fall into intervention traps in which ex-post efficient liquidity injections cause permanent declines in collateral quality.(c) 2022 Elsevier B.V. All rights reserved.