Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/173007 
Year of Publication: 
2017
Series/Report no.: 
CESifo Working Paper No. 6731
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper presents a simple equilibrium model in which collateralized credit emerges endogenously. Just like in repos, individuals cannot commit to the use of collateral as a guarantee of repayment, and both lenders and borrowers have incentives to renege. Our theory provides a micro-foundation to justify the borrowing constraints that are widely used in the existing macroeconomic models. We provide an explanation to the question of why assets are often used as collateral, rather than simply as a means of payment, why there is a tradeoff in assets between return and liquidity, and what kinds of assets are useful as collateral.
Subjects: 
collateral
search
medium of exchange
voluntary separable repeated game
JEL: 
E30
E50
C73
Document Type: 
Working Paper
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