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The Collateral Channel of Open Market Operations

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  • N. Cassola
  • F. Koulischer

Abstract

We build a model of collateral choice by banks to quantify how changes in the haircut policy of the central bank affect the collateral used by banks and the funding cost of banks. We estimate the model using data on assets pledged to the European Central Bank from 2009 to 2011. Our results suggest for example that a 5% higher haircut on low rated collateral would have reduced the use of this collateral by 10% but would have increased the average funding cost spread between high yield and low yield countries by 5% over our sample period.

Suggested Citation

  • N. Cassola & F. Koulischer, 2016. "The Collateral Channel of Open Market Operations," Working papers 593, Banque de France.
    • Handle: RePEc:bfr:banfra:593
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    Cited by:

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    3. Qi, Qianru & Wang, Jing, 2021. "Debt structure instability using machine learning," Journal of Financial Stability, Elsevier, vol. 57(C).
    4. Garvin, Nicholas, 2024. "Emergency liquidity injections," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 1496-1513.
    5. Geng, Guangjie & Han, Zhixuan & Wu, Hongli & Cheng, Miao & WANG, RAN & Liu, Huan, 2024. "Collateral policy of the central bank and corporate financing costs: Evidence from China," The North American Journal of Economics and Finance, Elsevier, vol. 70(C).
    6. Kazuhiro Takino, 2022. "The impact of non-cash collateralization on the over-the-counter derivatives markets," Review of Derivatives Research, Springer, vol. 25(2), pages 137-171, July.
    7. Pelizzon, Loriana & Riedel, Max & Simon, Zorka & Subrahmanyam, Marti G., 2024. "Collateral eligibility of corporate debt in the Eurosystem," Journal of Financial Economics, Elsevier, vol. 153(C).
    8. Arismendi-Zambrano, Juan & Belitsky, Vladimir & Sobreiro, Vinicius Amorim & Kimura, Herbert, 2022. "The implications of dependence, tail dependence, and bounds’ measures for counterparty credit risk pricing," Journal of Financial Stability, Elsevier, vol. 58(C).
    9. George Pantelopoulos, 2021. "Can Central Banks circumvent the impossible trinity within their operational frameworks? Theory and evidence," The World Economy, Wiley Blackwell, vol. 44(7), pages 2041-2075, July.
    10. Schmidt, Kirsten, 2019. "Does liquidity regulation impede the liquidity profile of collateral?," Working Paper Series 2256, European Central Bank.
    11. Vergote, Olivier & Sugo, Tomohiro, 2020. "Who takes the ECB’s targeted funding?," Working Paper Series 2439, European Central Bank.
    12. Paavola, Aleksi & Voutilainen, Ville, 2024. "Central bank collateral policy and credit pricing: Evidence from Finland," Bank of Finland Research Discussion Papers 7/2024, Bank of Finland.
    13. Bindseil, Ulrich & Corsi, Marco & Sahel, Benjamin & Visser, Ad, 2017. "The Eurosystem collateral framework explained," Occasional Paper Series 189, European Central Bank.
    14. Bank for International Settlements, 2019. "Unconventional monetary policy tools: a cross-country analysis," CGFS Papers, Bank for International Settlements, number 63, december.
    15. Hasan, Iftekhar & He, Qing & Lu, Haitian, 2020. "The impact of social capital on economic attitudes and outcomes," Journal of International Money and Finance, Elsevier, vol. 108(C).

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    More about this item

    Keywords

    Collateral; Haircut; Central Bank; Money market.;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G01 - Financial Economics - - General - - - Financial Crises
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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