Negative monetary policy effects from declines in pledgable collateral: IMF paper


The decline in the value of pledgable collateral by banks and dealers during the financial crisis may have had an adverse impact on monetary policy, according to an International Monetary Fund paper published on Wednesday.

Manmohan Singh, the paper's author, argues that a shortage of acceptable collateral can have a negative cascading impact on lending, similar to the impact on the money supply of a reduction in the monetary base. He says as large banks and dealers use and reuse collateral

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