The Monetary Policy Haircut Rule
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Series
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Speaker(s)Hans Gersbach (ETH Zürich, Switzerland)
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FieldMacroeconomics
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LocationTinbergen Institute Amsterdam, room 1.01
Amsterdam -
Date and time
February 27, 2025
16:00 - 17:15
Abstract
We derive monetary-policy haircut rules by embedding a banking model into a two-sector neoclassical economy. Banks rely on reserve loans that they obtain from the central bank by collateralizing commercial loans and government bonds. We offer simple static and dynamic rules for haircuts the central bank applies to pledged collateral, where optimal haircuts balance the efficient allocation of capital across sectors and bank-default costs. We calibrate the model to post-crisis U.S. data and find optimal haircut levels around 11%. In response to plausible negative and positive bank-equity shocks, optimal haircuts range between 5% and 16%, respectively. Varying haircuts have also distributional effects: bondholders and workers suffer from large haircuts, while bankers benefit despite reduced leverage. Joint paper with Markus Althanns.