Javier Bianchi

TL;DR: In this article, the authors quantify the effects of credit externality in a two-sector DSGE model of a small open economy calibrated to emerging markets, and show that the credit externalality causes a modest increase in average debt, of about 2 percentage points of GDP, but it triples the probability of financial crises and doubles the average current account and consumption reversals caused by these crises.

TL;DR: In this article, the authors quantify the effect of credit externality on the probability of financial crises and the maximum drop in consumption in a two-sector DSGE model of a small open economy calibrated to emerging markets.

TL;DR: In this paper, an equilibrium model of financial crises driven by Fisher's financial amplification mechanism features a pecuniary externality, because private agents do not internalize how the price of assets used for collateral respond to collective borrowing decisions, particularly when binding collateral constraints cause asset fire-sales and lead to a financial crisis.

TL;DR: In this paper, the authors quantify the effects of credit externality in a two-sector DSGE model of a small open economy calibrated to emerging markets, where debt is denominated in units of tradable goods, and is constrained not to exceed a fraction of income, including nontrables income valued at the relative price of nontradables.

TL;DR: In this paper, the authors studied overborrowing, financial crises and macro-prudential policy in an equilibrium model of business cycles and asset prices with collateral constraints, where agents in a decentralized competitive equilibrium do not internalize the negative effects of asset fire-sales on the value of other agents' assets and hence "they borrow too much" ex ante.