Central Bank Purchases of Private Assets
نویسنده
چکیده
A model is constructed in which consumers and banks have incentives to fake the quality of collateral. Conventional monetary easing can exacerbate these problems, in that the mispresentation of collateral becomes more profitable, thus increasing haircuts and interest rate differentials. Central bank purchases of private mortgages may not be feasible, due to misrepresentation of asset quality. If feasible, central bank asset purchase programs work by circumventing suboptimal fiscal policy, not by mitigating incentive problems in asset markets.
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