Asset-Price Collapse and Market Disruption - A model of financial crises -
We construct a search-theoretic model � la Lagos and Wright (2005), that has multiple steady-state equilibria, one of which may be interpreted as a state of financial crisis. The key ingredient is the collateral-secured loan in the decentralized matching market, in which the borrowers must put up their own land as collateral. They borrow debt for intertemporal smoothing of the consumption stream and also for factor payment in production. In the crisis state, the land price is low and the debt for factor payment, i.e., liquidity, dries up. Facing a liquidity shortage, all sellers choose not to participate in the matching market and the market is shut down due to the search externality. This market disruption lowers the aggregate productivity, while the low productivity justifies the low asset price in turn. We may be able to derive a policy implication that collective debt reduction by government intervention may solve the coordination failure and bring the economy out of the crisis equilibrium.
|Date of creation:||Sep 2009|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.rieti.go.jp/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Keiichiro Kobayashi, 2004.
"Payment Uncertainty, the division of labor, and productivity declines in great depressions,"
04037, Research Institute of Economy, Trade and Industry (RIETI).
- Keiichiro Kobayashi, 2006. "Payment uncertainty, the division of labor, and productivity declines in great depressions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(4), pages 715-741, October.
- Kobayashi, Keiichiro & Nakajima, Tomoyuki & Inaba, Masaru, 2012.
"Collateral Constraint And News-Driven Cycles,"
Cambridge University Press, vol. 16(05), pages 752-776, November.
- KOBAYASHI Keiichiro & NAKAJIMA Tomoyuki & INABA Masaru, 2007. "Collateral Constraint and News-driven Cycles," Discussion papers 07013, Research Institute of Economy, Trade and Industry (RIETI).
- Tomoyuki Nakajima & Masaru Inaba & Keiichiro Kobayashi, 2007. "Collateral constraint and news-driven cycles," 2007 Meeting Papers 320, Society for Economic Dynamics.
- Ricardo Lagos & Randall Wright, 2002.
"A unified framework for monetary theory and policy analysis,"
0211, Federal Reserve Bank of Cleveland.
- Ricardo Lagos & Randall Wright, 2005. "A Unified Framework for Monetary Theory and Policy Analysis," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 463-484, June.
- Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report 346, Federal Reserve Bank of Minneapolis.
- Timothy J. Kehoe & Edward C. Prescott (), 2007.
"Great depressions of the twentieth century,"
Federal Reserve Bank of Minneapolis, number 2007gdott.
- Christiano, Lawrence & Ilut, Cosmin & Motto, Roberto & Rostagno, Massimo, 2008. "Monetary policy and stock market boom-bust cycles," Working Paper Series 0955, European Central Bank.
- Ferraris, Leo & Watanabe, Makoto, 2008.
"Collateral secured loans in a monetary economy,"
Journal of Economic Theory,
Elsevier, vol. 143(1), pages 405-424, November.
- Urban Jermann & Vincenzo Quadrini, 2007.
"Financial Innovations and Macroeconomic Volatility,"
2007 Meeting Papers
50, Society for Economic Dynamics.
- Urban Jermann & Vincenzo Quadrini, 2006. "Financial innovations and macroeconomic volatility," Proceedings, Federal Reserve Bank of San Francisco, issue Nov.
- Jermann, Urban & Quadrini, Vincenzo, 2006. "Financial Innovations and Macroeconomic Volatility," CEPR Discussion Papers 5727, C.E.P.R. Discussion Papers.
- Urban Jermann & Vincenzo Quadrini, 2006. "Financial Innovations and Macroeconomic Volatility," NBER Working Papers 12308, National Bureau of Economic Research, Inc.
- Enrique G. Mendoza, 2006. "Endogenous Sudden Stops in a Business Cycle Model with Collateral Constraints:A Fisherian Deflation of Tobin's Q," NBER Working Papers 12564, National Bureau of Economic Research, Inc.
- Ricardo Lagos & Guillaume Rocheteau, 2004.
"Inflation, output, and welfare,"
0407, Federal Reserve Bank of Cleveland.
- Timothy Kehoe & Edward Prescott, 2002.
"Data Appendix to Great Depressions of the Twentieth Century,"
kehoe02, Review of Economic Dynamics.
- Lee E. Ohanian, 2001.
"Why Did Productivity Fall So Much during the Great Depression?,"
American Economic Review,
American Economic Association, vol. 91(2), pages 34-38, May.
- Lee E. Ohanian, 2002. "Why did productivity fall so much during the Great Depression?," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Spr.
- Lee E. Ohanian, 2001. "Why did productivity fall so much during the Great Depression?," Staff Report 285, Federal Reserve Bank of Minneapolis.
- KOBAYASHI Keiichiro & NUTAHARA Kengo, 2007.
"Collateralized capital and News-driven cycles,"
07062, Research Institute of Economy, Trade and Industry (RIETI).
When requesting a correction, please mention this item's handle: RePEc:eti:dpaper:09045. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (NUKATANI Sorahiko)
If references are entirely missing, you can add them using this form.