Limit search to available items
Book Cover
E-book
Author Boz, Emine, author

Title Financial innovation, the discovery of risk, and the U.S. credit crisis / prepared by Emine Boz and Enrique G. Mendoza
Published [Washington, D.C.] : International Monetary Fund, [2010]
©2010
Online access available from:
IMF eLibrary    View Resource Record  

Copies

Description 1 online resource (48 pages) : illustrations
Series IMF working paper ; WP/10/164
IMF working paper ; WP/10/164
Contents Cover Page; Title Page; Copyright Page; Contents; I. Introduction; 1. Net Credit Market Assets and Value of Residential Land; 2. Timeline of Events During the Run-up to the U.S. Credit Crisis; 3. Banks' Willingness To Lend; II. A Model of Financial Innovation with Learning; A. Agents' Optimization Problem; B. General Features of the Learning Setup; C. Learning and the Sequence of Beliefs; 4. Evolution of Beliefs; D. Recursive Competitive Equilibrium; III. Quantitative Analysis; A. Baseline Calibration; 1. Parameters; 5. Beta Distributions; 6. Evolution of Beliefs under Alternative Priors
B. Quantitative Findings1. Ergodic distributions; 7. Ergodic Distributions of Bond Holdings; 2. Forecast functions; 8. Forecast Functions; 9. Interest Rate Premium; 3. Turning Points; 2. Average Changes at the Turning Points; 4. Excess Returns on Land; 10. Excess Returns; 5. Sensitivity Analysis; 3. Sensitivity; IV. Conclusion; A. Solution Method; B. Computation of Ergodic Distributions, Forecast Functions and Excess Returns; References; Footnotes
Summary Uncertainty about the riskiness of new financial products was an important factor behind the U.S. credit crisis. We show that a boom-bust cycle in debt, asset prices and consumption characterizes the equilibrium dynamics of a model with a collateral constraint in which agents learn "by observation" the true riskiness of a new financial environment. Early realizations of states with high ability to leverage assets into debt turn agents optimistic about the persistence of a high-leverage regime. The model accounts for 69 percent of the household debt buildup and 53 percent of the rise in housing prices during 1997-2006, predicting a collapse in 2007
Bibliography Includes bibliographical references
Notes Print version record
Subject Credit -- United States.
Financial crises -- United States.
United States -- Economic conditions -- 21st century.
United States -- Economic policy.
Form Electronic book
Author Mendoza, Enrique G., 1963- author
IMF Institute, issuing body
International Monetary Fund, issuing body
ISBN 1282846361
1455201472
1455248533
9781282846364
9781455201471
9781455248537
Other Titles Financial innovation, the discovery of risk, and the United States credit crisis