Curbs on rehypothecation may boost welfare, St Louis Fed paper finds
Rehypothecation boosts welfare, but it best kept within limits
Rehypothecating assets – the recycling of collateral – can have important welfare benefits, and these can be maximised through a degree of regulatory intervention, research published by the Federal Reserve Bank of St Louis has found.
The working paper, titled simply Rehypothecation, by David Andolfatto Fernando Martin and Shengxing Zhang, uses a dynamic general equilibrium model to assess the impact of a shortage of assets. By freeing up collateral, rehypothecation allows cash and assets to flow
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