Arbeitspapier

Monetary policy under subjective beliefs of banks: Optimal central bank collateral requirements

We study how the subjective beliefs about loan repayment on the side of liquidity-constrained banks affect the central bank's choice of collateral standards in its lending facilities. Optimism on the side of banks, entailing a higher collateral value of bank loans, can lead to excessive lending and bank default. Pessimism, though, can entail insufficient lending and productivity losses. With an appropriate haircut on collateral, the central bank can perfectly neutralize the banks' belief distortions and always induce the socially optimal allocation. Under uncertainty about beliefs, the central bank's incentives to set looser collateral standards increase. This reduces the risk of deficient bank lending if sufficiently pessimistic beliefs realize. In extreme cases, monetary policy aims at mitigating productivity losses only, instead of also avoiding bank default.

Sprache
Englisch

Erschienen in
Series: Economics Working Paper Series ; No. 21/357

Klassifikation
Wirtschaft
Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
Expectations; Speculations
Money Supply; Credit; Money Multipliers
Monetary Policy
Central Banks and Their Policies
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Thema
beliefs
collateral
liquidity
central bank
banks

Ereignis
Geistige Schöpfung
(wer)
Böser, Florian
Ereignis
Veröffentlichung
(wer)
ETH Zurich, CER-ETH - Center of Economic Research
(wo)
Zurich
(wann)
2021

DOI
doi:10.3929/ethz-b-000492271
Handle
Letzte Aktualisierung
10.03.2025, 11:45 MEZ

Datenpartner

Dieses Objekt wird bereitgestellt von:
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. Bei Fragen zum Objekt wenden Sie sich bitte an den Datenpartner.

Objekttyp

  • Arbeitspapier

Beteiligte

  • Böser, Florian
  • ETH Zurich, CER-ETH - Center of Economic Research

Entstanden

  • 2021

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