During the 2008 financial crisis, the Federal Reserve established two emergency facilities for broker-dealers: one provided collateralized loans, the other collateral upgrades. These facilities alleviated dealers' funding pressures when access to repos backed by illiquid collateral deteriorated....

We re-connect money to inflation using Goodfriend and McCallum's (2007) model where banks supply loans to cash-in-advance constrained consumers on the basis of the value of collateral provided and the monitoring skills of banks. We show that when shocks to monitoring and collateral dominate...