The latest Alphachat features IMF economist Manmohan Singh, who discussed his work in recent years on the importance of pledged collateral and its reuse in financial markets.
It was a wide-ranging interview that included long stretches of wonky analysis, so we’ve provided a time guide below if you want to jump around and included some relevant links if you want to explore some of these topics further.
Ubiquitous emergency link here.
1.00 A general description of the kind of collateral that Manmohan studies — “pledged” collateral — and its moneylike properties.
3.35 His analysis of the pledged collateral market at the time of Lehman, and how it has evolved since then.
4.42 The shortfalls of broad money measures that don’t include collateral and its lubricative properties in certain financial markets.
8.05 An explanation of collateral velocity, and why it has declined in recent years. See also Izzy’s post on the difference between a collateral shortage and collateral scarcity.
9.25 Discusses the role of Fed’s QE in removing good collateral from the markets, and those of the SNB and ECB.
12.15 Explains how the Reserve Bank of Australia has found a way to provide HQLA (which can have velocity, unlike excess reserves that replace bonds in the Fed’s QE) that doesn’t involve the Australian government issuing debt. I’d also recommend Jeremy Stein’s speech on same and an earlier post on collateral counting.
17.58 Why the high quality collateral in Japan and China doesn’t travel across borders.
19.35 Manmohan addresses the monetarist challenge: the idea that QE and looser monetary policy generally replaces the collateral it removes by strengthening other extant assets, which could then be used as collateral. He also talks about the possibility for the repo rate to undermine the policy rate in a QE regime.
27.35 On the possibility that his work on collateral and reuse, and how this process lubricates financial markets, will make its way into mainstream economic thinking.