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The Quality of Eligible Collateral, Central Bank Losses and Monetary Stability

An Empirical Analysis

This book investigates to what extent the quality of eligible collateral is able to explain inflation. Addressing this question, hypotheses derived from the "Theory of Property Economics" by Heinsohn & Steiger are tested. Data are collected using a questionnaire, answered by central banks. An index of the quality of eligible collateral is constructed. Regression analyses are performed based on a sample of 62 countries for the period 1990 to 2003. A negative, robust and statistically significant correlation between inflation and the quality of eligible collateral is found. Central bank independence cannot contribute to the explanation of inflation. The result supports the theory of Heinsohn & Steiger: Securitisation of central bank lending is crucial for price stability.

22 Finally, Ize argues that central bank recapitalisations call for an extensive
policy debate.223 He develops a simple framework to assess central bank
capital adequacy and, using capital structure data for a broad sample of central
banks, ...