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Endogenous Repo Cycles

Author

Listed:
  • Makoto Watanabe

    (VU Amsterdam)

  • Vyacheslav Arbuzov

    (University of Rochester)

  • Yu Awaya

    (University of Rochester)

  • Hiroki Fukai

    (Kyushu University)

Abstract

This paper presents a simple and tractable equilibrium model of repos, where collateralized credit emerges under limited commitment. We show that even if there is no time variation in fundamentals, repo markets can fluctuate endogenously over time. In our theory, repo market fragilities are associated with endogenous fluctuations in trade probabilities, collateral values, and debt limits. We show that the collateral premium of a durable asset will become the lowest right before a recession and the highest right after the recession and that secured credit is acyclical.

Suggested Citation

  • Makoto Watanabe & Vyacheslav Arbuzov & Yu Awaya & Hiroki Fukai, "undated". "Endogenous Repo Cycles," Tinbergen Institute Discussion Papers 19-019/VII, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20190019
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    References listed on IDEAS

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    1. Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
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    3. Lagos, Ricardo & Wright, Randall, 2003. "Dynamics, cycles, and sunspot equilibria in 'genuinely dynamic, fundamentally disaggregative' models of money," Journal of Economic Theory, Elsevier, vol. 109(2), pages 156-171, April.
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    5. Chao Gu & Fabrizio Mattesini & Cyril Monnet & Randall Wright, 2013. "Endogenous Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 121(5), pages 940-965.
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    7. Piero Gottardi & Vincent Maurin & Cyril Monnet, 2019. "A theory of repurchase agreements, collateral re-use, and repo intermediation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 33, pages 30-56, July.
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    Cited by:

    1. Kubota, So & 久保田, 荘, 2019. "Market Structure and Indeterminacy of Stationary Equilibria in a Decentralized Monetary Economy," Discussion paper series HIAS-E-84, Hitotsubashi Institute for Advanced Study, Hitotsubashi University.

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    More about this item

    Keywords

    collateral; search; endogenous credit market fluctuations;
    All these keywords.

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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