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Sowing the Seeds of Financial Crises : Endogenous Asset Creation and Adverse Selection

Caramp, Nicolas - 2017

exacerbate the production of low-quality assets. Indeed, I show that this can increase the likelihood of a financial market …

Persistent link: https://www.econbiz.de/10012950995

A detrimental feedback loop : deleveraging and adverse selection

Bertsch, Christoph - 2013

Market distress can be the catalyst of a deleveraging wave, as in the 2007/08 financial crisis. This paper demonstrates how market distress and deleveraging can fuel each other in the presence of adverse selection problems in asset markets. At the core of the detrimental feedback loop is agents'...

Persistent link: https://www.econbiz.de/10010202960

Tranching, CDS and Asset Prices : How Financial Innovation Can Cause Bubbles and Crashes

Fostel, Ana; Geanakoplos, John - 2011

We show how the timing of financial innovation might have contributed to the mortgage boom and then to the bust of 2007-2009. We study the effect of leverage, tranching, securitization and CDS on asset prices in a general equilibrium model with collateral. We show why tranching and leverage tend...

Persistent link: https://www.econbiz.de/10014180051

Tranching, CDS and Asset Prices : How Financial Innovation Can Cause Bubbles and Crashes

Fostel, Ana - 2011

We show how the timing of financial innovation might have contributed to the mortgage bubble and then to the crash of 2007-2009. We show why tranching and leverage first raised asset prices and why CDS lowered them afterwards. This may seem puzzling, since it implies that creating a derivative...

Persistent link: https://www.econbiz.de/10013121404

Em-Powering Economics : Some Thoughts on Policy and Financial Markets

Falkinger, Josef - 2012

This paper addresses the discussion between economic power and the power of politics with particular focus on financial markets. After general reflections about the economic basis of power, the paper discusses in a general equilibrium framework how financial innovations can lead to risk creation...

Persistent link: https://www.econbiz.de/10014165300

Interaction of macroprudential and monetary policies : practice ahead of theory

Duprey, Thibaut; Terajima, Yaz; Yang, Jing - 2024

This paper examines how monetary and macroprudential policies interact and possibly complement each other in achieving their respective price and financial stability objectives. We first review the Canadian experience of housing market cycles and highlight the need to coordinate the two sets of...

Persistent link: https://www.econbiz.de/10015163673

Securitization under asymmetric information over the business cycle

Kuncl, Martin - 2015

investment projects and asymmetric information about the quality of securitized assets. I show that when retaining part of the … risk, the issuer of securitized assets may credibly signal its quality. However, in the boom stage of the business cycle … this practice is inefficient, information on asset quality remains private, and lower-quality assets accumulate on balance …

Persistent link: https://www.econbiz.de/10010479999

Securitization and aggregate investment efficiency

Mirza, Afrasiab; Stephens, Eric - 2016

This paper studies the welfare properties of competitive equilibria in an economy with incomplete markets subject to idiosyncratic and aggregate shocks. We focus on the role of securitization, whereby borrowers can reduce idiosyncratic asset risk, which enables increased leverage and investment....

Persistent link: https://www.econbiz.de/10012010374

Financial cycles under diagnostic beliefs

Camous, Antoine; Van der Ghote, Alejandro - 2022

Swift changes in investors' sentiment, such as the one triggered by COVID-19 global outbreak in March 2020, lead to financial tensions and asset price volatility. We study the interactions of behavioral and financial frictions in an environment with endoge- nous risk-taking and capital...

Persistent link: https://www.econbiz.de/10013189255

Credit Market Freezes

Benmelech, Efraim - 2017

Credit market freezes in which debt issuance declines dramatically and market liquidity evaporates are typically observed during financial crises. In the financial crisis of 2008-09, the structured credit market froze, issuance of corporate bonds declined, and secondary credit markets became...

Persistent link: https://www.econbiz.de/10012953727