Collateral and Monetary Policy

IMF Working Papers, August 28, 2013

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Collateral and Monetary Policy

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Bibliographic details

• Authors: Manmohan Singh
• Published: August 28, 2013
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781484384916.001

Overview

• Financial lubrication in markets is indifferent to margin posting via money or collateral; the relative price(s) of money and collateral matter.
• Some central banks are now a major player in the collateral markets.
• Analogous to a coiled spring, the larger the quantitative easing (QE) efforts, the longer the central banks will impact the collateral market and associated repo rate.
• This may have monetary policy and financial stability implications since the repo rates map the financial landscape that straddles the bank/nonbank nexus.

Key findings

• Financial lubrication is determined by the relative price(s) of money and collateral, not by whether margins are posted in money or collateral.
• Central banks’ large-scale asset purchases (QE) affect the collateral market and associated repo rate for extended periods.
• Repo rates serve as indicators that map the financial landscape across the bank/nonbank boundary.

Policy implications and considerations

• The prolonged central bank presence in collateral markets following QE operations can have both monetary policy and financial stability implications.
• Monitoring repo rates is important because they reflect conditions across banks and nonbanks and thus bear on transmission and systemic risk.

Subjects and keywords (as listed)

• Subjects: Banking, Central bank policy rate, Collateral, Financial institutions, Financial services, Financial statements, Monetary policy, Public financial management (PFM), Repo rates, Unconventional monetary policies
• Keywords: Africa, Central bank policy rate, central banks, Collateral, collateral market, collateral rate, Europe, Financial statements, intermediation function, IS/LM, market participant, pledged collateral, quantitative easing, re-use rate, release rate, release to nonbank, repo curve, repo rate, Repo rates, Unconventional monetary policies, velocity of collateral, WP

Content in this bundle

• Collateral and Monetary Policy; by Manmohan Singh; IMF Working Paper 13/186; August 1, 2013
  • Collateral and Monetary Policy; by Manmohan Singh; IMF Working Paper 13/186; August 1, 2013 (Markdown version)
  • Collateral and Monetary Policy; by Manmohan Singh; IMF Working Paper 13/186; August 1, 2013 (PDF)