Re-use of collateral: Leverage, volatility, and welfare

Arbeitspapier

We assess the quantitative implications of collateral re-use on leverage, volatility, and welfare within an infinite-horizon asset-pricing model with heterogeneous agents. In our model, the ability of agents to reuse frees up collateral that can be used to back more transactions. Re-use thus contributes to the buildup of leverage and significantly increases volatility in financial markets. When introducing limits on re-use, we find that volatility is strictly decreasing as these limits become tighter, yet the impact on welfare is non-monotone. In the model, allowing for some re-use can improve welfare as it enables agents to share risk more effectively. Allowing re-use beyond intermediate levels, however, can lead to excessive leverage and lower welfare. So the analysis in this paper provides a rationale for limiting, yet not banning, re-use in financial markets.

Angaben zum Objekt

• ISBN: 978-92-899-3323-0
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: ECB Working Paper ; No. 2218

Klassifikation und Themen

• Klassifikation: Wirtschaft ; General Equilibrium and Disequilibrium: Financial Markets ; Financial Crises ; Asset Pricing; Trading Volume; Bond Interest Rates ; General Financial Markets: Government Policy and Regulation
• Thema: Heterogeneous agents ; leverage ; re-use of collateral ; volatility ; welfare

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Brumm, Johannes ; Grill, Michael ; Kubler, Felix ; Schmedders, Karl
• Ereignis: Veröffentlichung
• (wer): European Central Bank (ECB)
• (wo): Frankfurt a. M.
• (wann): 2018

Weitere Informationen

• DOI: doi:10.2866/909036
• Handle: http://hdl.handle.net/10419/208252
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ