Asset-Price Collapse and Market Disruption - A model of financial crises -
We construct a search-theoretic model à 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|
|Contact details of provider:|| Postal: 11th floor, Annex, Ministry of Economy, Trade and Industry (METI) 1-3-1, Kasumigaseki Chiyoda-ku, Tokyo, 100-8901|
Web page: http://www.rieti.go.jp/
More information through EDIRC
References listed on IDEAS
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.:
- Urban J. Jermann & Vincenzo Quadrini, 2006.
"Financial innovations and macroeconomic volatility,"
Federal Reserve Bank of San Francisco, issue Nov.
- Urban Jermann & Vincenzo Quadrini, 2006. "Financial Innovations and Macroeconomic Volatility," NBER Working Papers 12308, National Bureau of Economic Research, Inc.
- Urban Jermann & Vincenzo Quadrini, 2007. "Financial Innovations and Macroeconomic Volatility," 2007 Meeting Papers 50, Society for Economic Dynamics.
- Jermann, Urban & Quadrini, Vincenzo, 2006. "Financial Innovations and Macroeconomic Volatility," CEPR Discussion Papers 5727, C.E.P.R. Discussion Papers.
- Christiano, Lawrence & Ilut, Cosmin & Motto, Roberto & Rostagno, Massimo, 2008. "Monetary policy and stock market boom-bust cycles," Working Paper Series 0955, European Central Bank.
- Keiichiro Kobayashi & Kengo Nutahara, 2007. "Collateralized capital and news-driven cycles," Economics Bulletin, AccessEcon, vol. 5(18), pages 1-9.
- KOBAYASHI Keiichiro & NUTAHARA Kengo, 2007. "Collateralized capital and News-driven cycles," Discussion papers 07062, Research Institute of Economy, Trade and Industry (RIETI).
- 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, 2002. "A unified framework for monetary theory and policy analysis," Working Paper 0211, Federal Reserve Bank of Cleveland.
- Ricardo Lagos & Randall Wright, 2004. "A unified framework for monetary theory and policy analysis," Staff Report 346, Federal Reserve Bank of Minneapolis.
- 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.
- Ferraris, Leo & Watanabe, Makoto, 2008. "Collateral secured loans in a monetary economy," Journal of Economic Theory, Elsevier, vol. 143(1), pages 405-424, November.
- Makoto Watanabe & Leo Ferraris, 2007. "Collateral Secured Loans in a Monetary Economy," 2007 Meeting Papers 121, Society for Economic Dynamics.
- Kobayashi, Keiichiro & Nakajima, Tomoyuki & Inaba, Masaru, 2012. "Collateral Constraint And News-Driven Cycles," Macroeconomic Dynamics, 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 & Guillaume Rocheteau, 2005. "Inflation, Output, And Welfare," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 495-522, 05.
- Ricardo Lagos & Guillaume Rocheteau, 2004. "Inflation, output, and welfare," Working Paper 0407, Federal Reserve Bank of Cleveland.
- Ricardo Lagos & Guillaume Rocheteau, 2004. "Inflation, output and welfare," Staff Report 342, Federal Reserve Bank of Minneapolis.
- 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.
- Keiichiro Kobayashi, 2004. "Payment Uncertainty, the division of labor, and productivity declines in great depressions," Discussion papers 04037, Research Institute of Economy, Trade and Industry (RIETI).
- 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?," American Economic Review, American Economic Association, vol. 91(2), pages 34-38, May.
- Lee E. Ohanian, 2001. "Why did productivity fall so much during the Great Depression?," Staff Report 285, Federal Reserve Bank of Minneapolis.
- Timothy J. Kehoe & Edward C. Prescott, 2002. "Great Depressions of the Twentieth Century," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 5(1), pages 1-18, January.
- Timothy Kehoe & Edward Prescott, 2002. "Data Appendix to Great Depressions of the Twentieth Century," Technical Appendices kehoe02, Review of Economic Dynamics.
- Timothy J. Kehoe & Edward C. Prescott(), 2007. "Great depressions of the twentieth century," Monograph, Federal Reserve Bank of Minneapolis, number 2007gdott.
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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.