Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2017-10-07
Number: 17-098/VII
Author-Name: Yu Awaya
Author-Email: YuAwaya@gmail.com
Author-Workplace-Name: University of Rochester
Author-Name: Hiroki Fukai
Author-Email: fukai.hiroki@gmail.com
Author-Workplace-Name: Kyushu University
Author-Name: Makoto Watanabe
Author-Email: makoto.wtnb@gmail.com
Author-Workplace-Name: Vrije Universiteit Amsterdam; Tinbergen Institute, The Netherlands
Title: A Model of Collateral
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.
Classification-JEL: C73
Keywords: collateral, search, medium of exchange, voluntary separable repeated game
File-Url: https://papers.tinbergen.nl/17098.pdf
File-Format: application/pdf
File-Size: 413864 bytes
Handle: RePEc:tin:wpaper:20170098