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using that asset as collateral is among the defining characteristics of the asset.
Geanakoplos (1997, 2003, 2010) instead proposes a theory in which margin requirements are endogenously determined in competitive markets.
Under these types of theories, the capital of intermediaries becomes a crucial
determinant of the supply of intermediation. For a given quantity of capital, the
5 This is one of two relatively reduced-form models of endogenous credit spreads considered in the
monetary dynamic stochastic general equilibrium model we present in Cúrdia and Woodford (2009).
The device of a “loan production function” is also used in Goodfriend and McCallum (2007) and in
Gerali, Neri, Sessa, and Signoretti (2010).
The “value-at-risk constraint” assumed by authors such as Zigrand, Shin, and Danielsson (2010), Adrian,
Moench, and Shin (2010b), and Adrian and Shin (forthcoming b) is an example of a constraint of this
form. Beaudry and Lahiri (2010) impose a similar constraint by simply assuming that intermediaries can
sell only riskless debt. The constraint assumed by Adrian and Shin (forthcoming b) is formally equivalent
to the one assumed by B...
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