Money Markets, Collateral, and Monetary Policy

Fiorella De Fiore; Marie Hoerova; Ciaran Rogers; Harald Uhlig

doi:10.1093/restud/rdag041

Money Markets, Collateral, and Monetary Policy

Fiorella De Fiore¹; Marie Hoerova²; Ciaran Rogers³; Harald Uhlig⁴

¹ Monetary and Economic Department, Bank for International Settlements, Switzerland ; and CEPR, UK · ² Directorate General Research , European Central Bank, Germany ; and CEPR, UK · ³ HEC Paris , France · ⁴ Kenneth C. Griffin Department of Economics , University of Chicago, USA ; and CEPR, UK

Review of Economic Studies 2026 open access

We document dramatic changes in euro area interbank money markets during the financial and sovereign debt crises: unsecured borrowing declined across the euro area, while secured market haircuts on sovereign bonds increased, and bank borrowing from the European Central Bank rose in southern countries. We construct a quantitative general equilibrium model to assess the macroeconomic impact of these developments and the associated policy response. Our model features heterogeneous banks and sovereign bonds, secured and unsecured money markets, and a central bank. We compare a benchmark policy—the central bank providing collateralized lending to banks at haircuts lower than the market—with an alternative policy that maintains a constant central bank balance sheet. We show that the fall in output, investment, and capital would have been twice as high under the alternative policy.

DOI: 10.1093/restud/rdag041
Language: en
Export: BibTeX
Sources: openalex crossref