Announcements

ECONOMICS SEMINAR- Tanju Yorulmazer

Author: CASE
Time: 16:00
Location: CASE 127

KOÇ UNIVERSITY
FACULTY OF ADMINISTRATIVE SCIENCES AND ECONOMICS
ECONOMICS SEMINAR

24 February  2020 –MONDAY

CASE 127 -16:00

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Speaker  : Tanju Yorulmazer-University of Amsterdam

Title       :  A Theory of Collateral for the Lender of Last Resort (joint with Joao Santos (New York Fed) and Dong Beom Choi (Seoul National University)

Time       : 16:00-17:30

Place      : CASE 127

Date       : 24 February 2020 -MONDAY

Abstract: We take a macroprudential approach to analyze the optimal lending policy for the central bank, focusing on externalities that policy imposes on markets. Lending against high-quality collateral protects central banks against losses, but can adversely affect liquidity creation in markets since high-quality collateral gets locked up with the central bank rather than circulating in markets. Lending against low-quality collateral creates counterparty risk but can improve liquidity in markets. We characterize the optimal policy incorporating these trade-offs. We show that, contrary to what is generally accepted, lending against high-quality collateral can have negative effects, whereas it may be optimal to lend against low-quality collateral.