Scarce collateral, the term premium, and quantitative easing
Abstract: A model of money, credit, and banking is constructed in which the differential pledgeability of collateral and the scarcity of collateralizable wealth lead to a term premium ? an upward-sloping nominal yield curve. Purchases of long-maturity government debt by the central bank are always a good idea, but for unconventional reasons. A floor system is preferred to a channel system, as a floor system permits welfare-improving asset purchases by the central bank.
File format is application/pdf
Description: Full text
Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2014-01-15
Pages: 36 pages