Journal ArticleDOI
Leverage Cycles and the Anxious Economy
Ana Fostel,John Geanakoplos +1 more
TLDR
In this paper, the authors present a theory of asset pricing that will shed light on the problems of emerging assets (like emerging markets) that are not yet mature enough to be attractive to the general public, and argue that the periodic problems faced by emerging asset classes are sometimes symptoms of what we call a global anxious economy rather than of their own fundamental weaknesses.Abstract:
ing opportunities for emerging economies. Their access to international markets has turned out to be very volatile, with frequent periods of market closures. Even worse, as we will show, emerging economies with sound fundamentals are the ones that issue less debt during these closures. The goal of this paper is to present a theory of asset pricing that will shed light on the problems of emerging assets (like emerging markets) that are not yet mature enough to be attractive to the general public. Their marginal buyers are liquidity constrained investors with small wealth relative to the whole economy, who are also marginal buyers of other risky assets. We will use our theory to argue that the periodic problems faced by emerging asset classes are sometimes symptoms of what we call a global anxious economy rather than of their own fundamental weaknesses.read more
Citations
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Journal ArticleDOI
Market Liquidity and Funding Liquidity
TL;DR: In this article, the authors provide a model that links a security's market liquidity and traders' funding liquidity, i.e., their availability of funds, to explain the empirically documented features that market liquidity can suddenly dry up (i) is fragile), (ii) has commonality across securities, (iii) is related to volatility, and (iv) experiences “flight to liquidity” events.
Journal ArticleDOI
A model of unconventional monetary policy
TL;DR: The authors developed a quantitative monetary DSGE model with financial intermediaries that face endogenously determined balance sheet constraints and used the model to evaluate the effects of the central bank using unconventional monetary policy to combat a simulated financial crisis.
Book ChapterDOI
Financial Intermediation and Credit Policy in Business Cycle Analysis
Mark Gertler,Nobuhiro Kiyotaki +1 more
TL;DR: The authors developed a canonical framework to think about credit market frictions and aggregate economic activity in the context of the current crisis, and used the framework to address two issues in particular: first, how disruptions in financial intermediation can induce a crisis that affects real activity; and second, how various credit market interventions by the central bank and the Treasury of the type we have seen recently, might work to mitigate the crisis.
Journal ArticleDOI
From Financial Crash to Debt Crisis
Carmen Reinhart,Kenneth Rogoff +1 more
TL;DR: In this paper, the authors developed historical time series on public debt, along with data on external debts, allow a deeper analysis of the debt cycles underlying serial debt and banking crises, and they test three related hypotheses at both world aggregate levels and on an individual country basis.
Journal ArticleDOI
Market Liquidity and Funding Liquidity
TL;DR: In this paper, the authors provide a model that links a security's market liquidity and traders' availability of funds, showing that reductions in market liquidity are mutually reinforcing, leading to a liquidity spiral and that the Fed can improve current market liquidity by committing to improve funding in a potential future crisis.
References
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Journal ArticleDOI
The Twin Crises: The Causes of Banking and Balance-Of-Payments Problems
TL;DR: The authors analyzes the links between banking and currency crises and finds that problems in the banking sector typically precede a currency crisis, activating a vicious spiral; financial liberalization often precedes banking crises.
Posted Content
The twin crises: the causes of banking and balance-of-payments problems
TL;DR: This paper examined the potential links between banking and balance-of-payments crises and found that financial liberalization usually predates banking crises, indeed, it helps predict them, rather than a causal relationship from banking to balance of payments crises.
Posted Content
Agency Costs, Net Worth, And Business Fluctuations
Ben S. Bernanke,Mark Gertler +1 more
TL;DR: The authors constructs a simple neoclassical model of intrinsic business cycle dynamics in which borrowers' balance sheet positions play an important role and shows that the agency costs of undertaking physical investments are inversely related to the entrepreneur's/borrower's net worth.
Journal ArticleDOI
Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information
TL;DR: The authors analyzes competitive markets in which the characteristics of the commodities exchanged are not fully known to at least one of the parties to the transaction, and suggests that some of the most important conclusions of economic theory are not robust to considerations of imperfect information.
Posted ContentDOI
Agency Costs, Net Worth, and Business Fluctuations.
Mark Gertler,Ben S. Bernanke +1 more
TL;DR: The authors developed a simple neoclassical model of the business cycle in which the condition of borrowers' balance sheets is a source of output dynamics, and the mechanism is that higher borrower net worth reduces the agency costs of financing real capital investments.