Wednesday, December 4, 2024
Hoover Institution | Stanford University
Harald Uhlig, Hoover visiting fellow and the Bruce Allen and Barbara Ritzenthaler Professor in Economics and the College at the University of Chicago, discussed “Money Markets, Collateral and Monetary Policy,” a paper with Fiorella De Fiore (BIS), Marie Hoerova (ECB), and Ciaran Rogers (HEC Paris).
PARTICIPANTS
Harald Uhlig, John Taylor, Annelise Anderson, Christopher Ball, Michael Boskin, Pedro Carvalho, John Cochrane, Steve Davis, Randi Dewitty, Alexander Downer, John Duca, Bob Hall, Robert Hetzel, Gregory Kaldor, Robert King, Don Koch, Evan Koenig, David Laidler, John Lipsky, Xu Lu, Axel Merk, Athanasios Orphanides, David Papell, Elena Pastorino, Valerie Ramey, Stephen Redding, Stephen Roy, Tom Stephenson, Jack Tatom, Yevgeniy Teryoshin, Ramin Toloui, Araha Uday, Victor Valcarcel, Marc Weidenmier
ISSUES DISCUSSED
Harald Uhlig, Hoover visiting fellow and the Bruce Allen and Barbara Ritzenthaler Professor in Economics and the College at the University of Chicago, discussed “Money Markets, Collateral and Monetary Policy,” a paper with Fiorella De Fiore (BIS), Marie Hoerova (ECB), and Ciaran Rogers (HEC Paris).
John Taylor, the Mary and Robert Raymond Professor of Economics at Stanford University and the George P. Shultz Senior Fellow in Economics at the Hoover Institution, was the moderator.
PAPER SUMMARY
We document dramatic changes in euro area interbank money markets during the financial and sovereign debt crises: the share of unsecured borrowing declined throughout, while in the South private market haircuts on sovereign bonds and bank borrowing from the European Central Bank increased, and deposits initially shrank. We construct a quantitative general equilibrium model to evaluate 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—to 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. More generally, the model allows the analysis of monetary policy tools beyond interest rate policies and quantitative easing.
To read the paper, click the following link
https://www.hoover.org/sites/default/files/2024-12/DHRU%20Money%20Markets%20Collateral%20and%20Monetary%20Policy%202024%2008%2006.pdf
To read the slides, click the following link
https://www.hoover.org/sites/default/files/2024-12/DHRU%20Slides%20Hoover%202024%20December.pdf
