How much of a loan should a lender dynamically retain and how does retention affect loan performance? We address these questions in a dynamic agency model in which a lender originates loans that it can sell to investors. The lender reduces default risk through screening at origination and...

In this paper we examine the effect of collateral requirements on the prices of long-lived assets. We consider a Lucas-style infinite-horizon exchange economy with heterogeneous agents and collateral constraints. There are two trees in the economy which can be used as collateral for short-term...

In this paper we examine the quantitative effects of margin regulation on volatility in asset markets. We consider a general equilibrium in finite-horizon economy with heterogeneous agents and collateral constraints. There are two assets in the economy which can be used as collateral for...

We describe a general equilibrium model with a banking system in which the deposit bank collects deposits from households and the merchant bank provides funds to firms. Merchant banks borrow collateralized short-term funds from deposit banks. In a financial downturn, as the value of collateral...

This paper seeks to inform about a feature of monetary policy that is largely overlooked, yet occupies a central role in modern monetary and financial systems, namely central bank collateral frameworks. Their importance can be understood by the observation that the money at the core of these...

Central-bank collateral policy governs the convertibility of assets into central-bank money provided directly by the central bank. Focusing on government bonds, we develop clean identification of variation in such convertibility by exploiting differential treatment of same-country government...

Repo markets trade off the efficient allocation of liquidity in the financial sector with resilience to funding shocks. The repo trading and clearing mechanisms are crucial determinants of the allocation-resilience tradeoff. The two common mechanisms, anonymous central-counterparty (CCP) and...

Traditional liquidity measures can provide a false impression of the liquidity and stability of financial market trading. Using data on auctions (bids wanted in competition; BWICs) from the collateralized loan obligation (CLO) market, we show that a standard measure of liquidity, the effective...

We develop a tractable model to study the macroeconomic impacts of limited arbitrage by linking arbitrage activities with the macroeconomy through collateralization. We show that the interactions between speculative trading and the business cycle can work as a powerful transmission mechanism,...