The assets' pledgeability channel of unconventional monetary policy

We identify a new channel of the monetary policy transmission that affects asset prices through the secured interbank market. Central bank's open market operations, by changing the relative amount of securities and reserves, alter the amount of securities that can be used as collateral and, consequently, influence their prices. Ceteris paribus the magnitude of the effect depends on assets' pledgeability properties (haircuts). We analyze the relation between yields of euro area government bonds, the haircuts applied to these assets and the relative amount of bonds and central banks reserves. The empirical evidence confirms that this channel is economically relevant.