@techreport{Chapman2010Central, abstract = {We present a model
of central bank collateralized lending to study the optimal
choice of the haircut policy. We show that a lending facility
provides a bundle of two types of insurance: insurance against
liquidity risk as well as insurance against downside risk of the
collateral. Setting a haircut therefore involves balancing the
trade-off between relaxing the liquidity constraints of agents
on one hand, and increasing potential inflation risk and
distorting the portfolio choices of agents on the other. We
argue that the optimal haircut is higher when the central bank
is unable to lend exclusively to agents who actually need
liquidity. Finally, for an unexpected drop in the haircut, the
central bank can be more aggressive than when setting a
permanent level of the haircut.}, address = {Ottawa}, author =
{James Chapman and Jonathan Chiu and Miguel Molico}, copyright =
{http://www.econstor.eu/dspace/Nutzungsbedingungen}, keywords =
{E40; E50; 330; Payment; clearing an