Collateral must be part of monetary policy equation
Incorporating collateral efficiency into IS-LM model reveals side-effects of QE
This article is a summary of chapter 4 of Collateral Markets and Financial Plumbing (3rd Edition), published in March by Risk Books
The renewal of quantitative easing (QE) in response to the Covid-19 pandemic means central banks will continue to play a major role in collateral markets for some time to come.
QE removes good collateral – typically sovereign bonds, but even corporates and equities – from the market. This has implications for associated rates, such as repo, securities lending
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