environment in which borrowers face no penalty for failing to repay obligations except the loss of their collateral. I assume that … this collateral has aggregate risk. For a subset of the exogenous parameters, I demonstrate that an optimal arrangement …

in modern monetary and financial systems, namely central bank collateral frameworks. Their importance can be understood …, not defined in a market, but by the collateral frameworks and interest rate policies of central banks. Using the … collateral framework of the Eurosystem as a basis of illustration and case study, the paper brings to light the functioning …

collateralized debt is the optimal contract. The necessary and sufficient condition is that the borrower values the collateral good … more highly than does the lender; otherwise the optimal contract does not resemble debt. Limited collateral can give rise …

studying an extensive dataset of banks' liquidity uptake and pledged collateral in central bank repos. We document systemic … arbitrage whereby banks funnel credit risk and low-quality collateral to the central bank. Weaker banks use lower quality … collateral to demand disproportionately larger amounts of central bank money (liquidity). This holds both before and after the …