Financial innovation,the discovery of risk,and the U.S. credit crisis |
| |
| Affiliation: | 1. Research Department, International Monetary Fund, 700 19th St. NW, Washington, DC 20431, USA;2. University of Pennsylvania, USA;3. NBER, USA;1. Harvard University, USA;2. Bank of International Settlements, Switzerland;3. INSEAD, France;1. Sao Paulo School of Economics-FGV, Brazil;2. Michigan State University, United States;1. New York University, 40 Washington Square South, New York, NY 10012, United States;2. Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue N.W., Washington, D.C. 20551, United States;1. Division of Monetary Affairs, Federal Reserve Board, Washington, DC 20551, USA;2. 4987 Preakness Place, Bethlehem, PA 18020, USA;1. Texas Christian University, USA;2. Research Department, Federal Reserve Bank of Atlanta, 1000 Peachtree Street, N.E., Atlanta, GA 30309-4470, USA;1. Paris School of Economics, University of Paris 1 Panthéon-Sorbonne, and CEPR, France;2. Australian National University, CAMA, and EABCN, Australia;3. University .of Washington, CEPR, EABCN, and NBER, United States |
| |
| Abstract: | Financial innovation and overconfidence about the risk of new financial products were key factors behind the 2008 U.S. credit crisis. We show that a model with a collateral constraint in which learning about the risk of a new financial environment interacts with Fisherian amplification produces a boom–bust cycle in debt, asset prices and consumption. Early realizations of a high-borrowing-ability regime turn agents optimistic about the persistence probability of this regime. Conversely, the first realization of a low-borrowing-ability regime turns agents unduly pessimistic. The model predicts large increases in household debt, land prices and excess returns during 1998–2006 followed by a collapse. |
| |
| Keywords: | Credit crisis Financial innovation Imperfect information Learning Asset prices Fisherian amplification Anticipated utility |
| 本文献已被 ScienceDirect 等数据库收录！ |
|
