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The Leverage Cycle

Abstract

Equilibrium determines leverage, not just interest rates. Variations in leverage cause fluctuations in asset prices. This leverage cycle can be damaging to the economy, and should be regulated.

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File URL: http://cowles.yale.edu/sites/default/files/files/pub/d17/d1715.pdf
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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1715.

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Length: 54 pages
Date of creation: Jul 2009
Handle: RePEc:cwl:cwldpp:1715
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Yale University, Box 208281, New Haven, CT 06520-8281 USA

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Web page: http://cowles.yale.edu/

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Keywords: Leverage; Collateral; Cycle; Crisis; Regulation;

Find related papers by JEL classification:

  • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
  • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
  • G01 - Financial Economics - - General - - - Financial Crises
  • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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  1. Markus K. Brunnermeier & Lasse Heje Pedersen, 2009. "Market Liquidity and Funding Liquidity," Review of Financial Studies, Society for Financial Studies, vol. 22(6), pages 2201-2238, June.
  2. Ana Fostel & John Geanakoplos, 2008. "Collateral restrictions and liquidity under-supply: a simple model," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 35(3), pages 441-467, June.
  3. Gromb, Denis & Vayanos, Dimitri, 2002. "Equilibrium and welfare in markets with financially constrained arbitrageurs," Journal of Financial Economics, Elsevier, vol. 66(2-3), pages 361-407.
  4. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  5. John Geanakoplos & Felix Kubler, 2004. "Leverage, Incomplete Markets and Crises," 2004 Meeting Papers 557, Society for Economic Dynamics.
  6. Caballero, Ricardo J. & Krishnamurthy, Arvind, 2001. "International and domestic collateral constraints in a model of emerging market crises," Journal of Monetary Economics, Elsevier, vol. 48(3), pages 513-548, December.
  7. Guido Lorenzoni, 2008. "Inefficient Credit Booms," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 809-833.
  8. John Geanakoplos & Ana Fostel, 2008. "Leverage Cycles and the Anxious Economy," American Economic Review, American Economic Association, vol. 98(4), pages 1211-1244, September.
  9. Adrian, Tobias & Shin, Hyun Song, 2010. "Liquidity and leverage," Journal of Financial Intermediation, Elsevier, vol. 19(3), pages 418-437, July.
  10. Dimitri Vayanos, 2004. "Flight to quality, flight to liquidity, and the pricing of risk," LSE Research Online Documents on Economics 456, London School of Economics and Political Science, LSE Library.
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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Colateral, apalancamiento y crisis económicas (I)
    by Ramón Mateo in Politikon on 2012-06-04 15:25:06
  2. Colateral, apalancamiento y crisis económicas (II)
    by Ramón Mateo in Politikon on 2012-06-05 16:10:15
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