Financial Innovation, the Discovery of Risk, and the U.S. Credit Crisis /

Uncertainty about the riskiness of new financial products was an important factor behind the U.S. credit crisis. We show that a boom-bust cycle in debt, asset prices and consumption characterizes the equilibrium dynamics of a model with a collateral constraint in which agents learn "by observat...

Täydet tiedot

Bibliografiset tiedot
Päätekijä: Mendoza, Enrique
Muut tekijät: Boz, Emine
Aineistotyyppi: Aikakauslehti
Kieli:English
Julkaistu: Washington, D.C. : International Monetary Fund, 2010.
Sarja:IMF Working Papers; Working Paper ; No. 2010/164
Linkit:Full text available on IMF
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245 1 0 |a Financial Innovation, the Discovery of Risk, and the U.S. Credit Crisis /  |c Enrique Mendoza, Emine Boz. 
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300 |a 1 online resource (62 pages) 
490 1 |a IMF Working Papers 
500 |a <strong>Off-Campus Access:</strong> No User ID or Password Required 
500 |a <strong>On-Campus Access:</strong> No User ID or Password Required 
506 |a Electronic access restricted to authorized BRAC University faculty, staff and students 
520 3 |a Uncertainty about the riskiness of new financial products was an important factor behind the U.S. credit crisis. We show that a boom-bust cycle in debt, asset prices and consumption characterizes the equilibrium dynamics of a model with a collateral constraint in which agents learn "by observation" the true riskiness of a new financial environment. Early realizations of states with high ability to leverage assets into debt turn agents optimistic about the persistence of a high-leverage regime. The model accounts for 69 percent of the household debt buildup and 53 percent of the rise in housing prices during 1997-2006, predicting a collapse in 2007. 
538 |a Mode of access: Internet 
700 1 |a Boz, Emine. 
830 0 |a IMF Working Papers; Working Paper ;  |v No. 2010/164 
856 4 0 |z Full text available on IMF  |u http://elibrary.imf.org/view/journals/001/2010/164/001.2010.issue-164-en.xml  |z IMF e-Library