Collateral Equilibrium - A Basic Framework
AbstractMuch of the lending in modern economies is secured by some form of collateral; residential and commercial mortgages and corporate bonds are familiar examples. This paper builds an extension of general equilibrium theory that incorporates durable goods, collateralized securities and the possibility of default to argue that the reliance on collateral to secure loans and the particular collateral requirements chosen by the social planner or by the market have a profound impact on prices, allocations, market structure and the efficiency of market outcomes. These findings provide insights into housing and mortgage markets, including the sub-prime mortgage market.
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Bibliographic InfoPaper provided by Einaudi Institute for Economics and Finance (EIEF) in its series EIEF Working Papers Series with number 1319.
Length: 59 pages
Date of creation: 2013
Date of revision: Aug 2013
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-13 (All new papers)
- NEP-MIC-2013-09-13 (Microeconomics)
- NEP-URE-2013-09-13 (Urban & Real Estate Economics)
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