IDEAS home Printed from https://ideas.repec.org/p/tcr/wpaper/e104.html
   My bibliography  Save this paper

Nontraditional Monetary Policy in a Model of Default Risks and Collateral in the Absence of Commitment

Author

Listed:
  • Hiroshi FUJIKI

Abstract

We show that a central bank could improve the allocation of resources by delivering the defaulting party's collateral goods to those who consume the most quickly. We base our discussion on Mills and Reed (2012)'s repo contract model, which shows that the consumption of the lender will be the same whether the borrower is a productive agent or an unproductive agent. We extend their model by considering shocks to the second period of lenders' lives, which force them to consume within an early stage of the second period of their lives. The shock could make the consumption of lenders vary depending on the timing of transactions in the goods market. We show that a central bank could make the consumption of lenders constant regardless of the timing of transactions in the goods market, and could achieve better resource allocation by using various nontraditional monetary policy tools.

Suggested Citation

  • Hiroshi FUJIKI, 2016. "Nontraditional Monetary Policy in a Model of Default Risks and Collateral in the Absence of Commitment," Working Papers e104, Tokyo Center for Economic Research.
    • Handle: RePEc:tcr:wpaper:e104
    as

    Download full text from publisher

    File URL: https://www.tcer.or.jp/wp/pdf/e104.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jeffrey Lacker, 2001. "Collateralized Debt as the Optimal Contract," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(4), pages 842-859, October.
    2. Shouyong Shi, 1996. "Credit and Money in a Search Model with Divisible Commodities," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 63(4), pages 627-652.
    3. Roger E.A. Farmer (ed.), 2008. "Macroeconomics in the Small and the Large," Books, Edward Elgar Publishing, number 13236.
    4. Ferraris, Leo & Watanabe, Makoto, 2008. "Collateral secured loans in a monetary economy," Journal of Economic Theory, Elsevier, vol. 143(1), pages 405-424, November.
    5. Cyril Monnet & Thomas Nellen, 2021. "The Collateral Costs of Clearing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(5), pages 939-970, August.
    6. Edward J. Green, 1999. "Money and debt in the structure of payments," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 23(Spr), pages 13-29.
    7. Timothy J. Kehoe & David K. Levine, 2008. "Bankruptcy and Collateral in Debt Constrained Markets," Chapters, in: Roger E.A. Farmer (ed.), Macroeconomics in the Small and the Large, chapter 5, Edward Elgar Publishing.
    8. Mills, David Jr., 2006. "Alternative central bank credit policies for liquidity provision in a model of payments," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1593-1611, October.
    9. Freeman, Scott, 1996. "The Payments System, Liquidity, and Rediscounting," American Economic Review, American Economic Association, vol. 86(5), pages 1126-1138, December.
    10. David C. Mills, Jr, 2004. "Mechanism Design and the Role of Enforcement in Freeman's Model of Payments," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 7(1), pages 219-236, january.
    11. Jeffrey Lacker, 2001. "Collateralized Debt as the Optimal Contract," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(4), pages 842-859, October.
    12. A. Rampini, Adriano, 2005. "Default and aggregate income," Journal of Economic Theory, Elsevier, vol. 122(2), pages 225-253, June.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Tomura, Hajime, 2018. "Payment instruments and collateral in the interbank payment system," Journal of Economic Theory, Elsevier, vol. 178(C), pages 82-104.
    2. Kahn, Charles M. & Roberds, William, 2009. "Why pay? An introduction to payments economics," Journal of Financial Intermediation, Elsevier, vol. 18(1), pages 1-23, January.
    3. Francisco J. Callado Muñoz & Natalia Utrero González, 2013. "Intraday Liquidity and Central Bank Credit in Gross Payment Systems," International Finance, Wiley Blackwell, vol. 16(3), pages 363-392, December.
    4. Mills, David Jr., 2006. "Alternative central bank credit policies for liquidity provision in a model of payments," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1593-1611, October.
    5. S. Viswanathan & Adriano A. Rampini, 2008. "Collateral, Financial Intermediation, and the Distribution of Debt Capacity," 2008 Meeting Papers 116, Society for Economic Dynamics.
    6. Bhattacharya, Joydeep & Haslag, Joseph H. & Martin, Antoine, 2009. "Why does overnight liquidity cost more than intraday liquidity?," Journal of Economic Dynamics and Control, Elsevier, vol. 33(6), pages 1236-1246, June.
    7. Madison, Florian, 2024. "Asymmetric information in frictional markets for liquidity: Collateralized credit vs asset sale," Journal of Economic Dynamics and Control, Elsevier, vol. 159(C).
    8. Borghan Nezami Narajabad & Cyril Monnet, 2012. "Why Rent When You Can Buy? A Theory of Repurchase Agreements," 2012 Meeting Papers 647, Society for Economic Dynamics.
    9. ANTOINE MARTIN & JAMES McANDREWS, 2010. "Should There Be Intraday Money Markets?," Contemporary Economic Policy, Western Economic Association International, vol. 28(1), pages 110-122, January.
    10. Yu Awaya & Hiroki Fukai & Makoto Watanabe, 2021. "A Model Of Collateral: Endogenizing The Borrowing Constraint," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(3), pages 1131-1151, August.
    11. James T.E. Chapman & Antoine Martin, 2013. "Rediscounting under Aggregate Risk with Moral Hazard," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(4), pages 651-674, June.
    12. Huberto M. Ennis & John A. Weinberg, 2007. "Interest on reserves and daylight credit," Economic Quarterly, Federal Reserve Bank of Richmond, vol. 93(Spr), pages 111-142.
    13. Cecilia Parlatore Siritto, 2012. "Equilibrium Collateral Constraints," 2012 Meeting Papers 492, Society for Economic Dynamics.
    14. Gu, Chao & Guzman, Mark & Haslag, Joseph, 2011. "Production, hidden action, and the payment system," Journal of Monetary Economics, Elsevier, vol. 58(2), pages 172-182, March.
    15. Kang, Kee-Youn, 2021. "Optimal contract for asset trades: Collateralizing or selling?," Journal of Financial Markets, Elsevier, vol. 56(C).
    16. Hajime Tomura, 2021. "Nominal contracts and the payment system," The Japanese Economic Review, Springer, vol. 72(2), pages 185-216, April.
    17. Cyril Monnet & Borghan N. Narajabad, 2017. "Why Rent When You Can Buy?," Finance and Economics Discussion Series 2017-094, Board of Governors of the Federal Reserve System (U.S.).
    18. Ed Nosal & Guillaume Rocheteau, 2006. "The economics of payments," Policy Discussion Papers, Federal Reserve Bank of Cleveland, issue Feb.
    19. Dan Cao & Roger Lagunoff, 2016. "The Design of Optimal Collateralized Contracts," Working Papers gueconwpa~16-16-01, Georgetown University, Department of Economics, revised 01 Jun 2017.
    20. Ferraris, Leo, 2010. "On the complementarity of money and credit," European Economic Review, Elsevier, vol. 54(5), pages 733-741, July.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:tcr:wpaper:e104. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/tctokjp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.