Arbeitspapier
Central bank haircut policy
We present a model of central bank collateralized lending to study the optimal choice of the haircut policy. We show that a lending facility provides a bundle of two types of insurance: insurance against liquidity risk as well as insurance against downside risk of the collateral. Setting a haircut therefore involves balancing the trade-off between relaxing the liquidity constraints of agents on one hand, and increasing potential inflation risk and distorting the portfolio choices of agents on the other. We argue that the optimal haircut is higher when the central bank is unable to lend exclusively to agents who actually need liquidity. Finally, for an unexpected drop in the haircut, the central bank can be more aggressive than when setting a permanent level of the haircut.
- Language
-
Englisch
- Bibliographic citation
-
Series: Bank of Canada Working Paper ; No. 2010-23
- Classification
-
Wirtschaft
Money and Interest Rates: General
Monetary Policy, Central Banking, and the Supply of Money and Credit: General
- Subject
-
Payment
clearing and settlement systems
Central bank research
Monetary policy implementation
Financial system regulation and policies
Financial services
Zentralbank
Geldpolitik
Finanzpolitik
Öffentliche Schulden
Schuldenerlass
Theorie
- Event
-
Geistige Schöpfung
- (who)
-
Chapman, James
Chiu, Jonathan
Molico, Miguel
- Event
-
Veröffentlichung
- (who)
-
Bank of Canada
- (where)
-
Ottawa
- (when)
-
2010
- DOI
-
doi:10.34989/swp-2010-23
- Handle
- Last update
-
10.03.2025, 11:44 AM CET
Data provider
This object is provided by:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Chapman, James
- Chiu, Jonathan
- Molico, Miguel
- Bank of Canada
Time of origin
- 2010
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