Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/167565
Authors: 
Gottardi, Piero
Maurin, Vincent
Monnet, Cyril
Year of Publication: 
2017
Series/Report no.: 
CESifo Working Paper 6579
Abstract: 
We show that repurchase agreements (repos) arise as the instrument of choice to borrow in a competitive model with limited commitment. The repo contract traded in equilibrium provides insurance against fluctuations in the asset price in states where collateral value is high and maximizes borrowing capacity when it is low. Haircuts increase both with counterparty risk and asset risk. In equilibrium, lenders choose to re-use collateral. This increases the circulation of the asset and generates a "collateral multiplier" effect. Finally, we show that intermediation by dealers may endogenously arise in equilibrium, with chains of repos among traders.
Subjects: 
repos
collateral multiplier
limited commitment
intermediation
JEL: 
G19
Document Type: 
Working Paper

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