Central Bank Haircut Policy
نویسندگان
چکیده
The paper develops a model to study the optimal choice of the central bank haircut policy. In the presence of uncertainties regrading liquidity needs and asset prices, there is a trade-off between providing liquidity to constrained agents and controlling the abundance of liquidity in the economy. The choice of the haircut involves balancing impacts on the liquidity positions of agents with different portfolio choices and different liquidity needs. In general, a full haircut and a zero haircut are both sub-optimal. The optimal choice will depend on the relative tightness of agents’ liquidity constraints, the predictability of the liquidity shocks, and the volatility of asset prices. The optimal haircut is higher when the central bank is unable to lend exclusively to agents who actually need liquidity. Finally, for a temporary, surprise drop in the haircut, the central bank can be more aggressive than setting the permanent level of the haircut. J.E.L. Classification Numbers: E40, E50
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