Credit booms and freezes
Daripa, Arup (2018) Credit booms and freezes. Working Paper. Birkbeck, University of London, London, UK.
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Abstract
We show that short-term borrowing by intermediaries creates a rollover-coordination problem endogenously. We then introduce ambiguity and show that the coordination outcome is discontinuous in ambiguity attitude: starting from neutrality, any aversion implies a complete collapse for every value of fundamentals for which coordination matters, whereas any ambiguity loving causes successful coordination for all such values of fundamentals - a "lending euphoria." These help clarify credit booms even when backed by sub-prime assets as well as sudden credit freezes at the advent of bad news even for borrowers investing in non-sub-prime assets.
Metadata
| Item Type: | Monograph (Working Paper) |
|---|---|
| Keyword(s) / Subject(s): | Rollover coordination, global games, ambiguity, ambiguity-sensitivity, α-maxmin expected utility, multiple equilibria, credit booms, liquidity freezes |
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Depositing User: | Arup Daripa |
| Date Deposited: | 06 Jan 2020 10:31 |
| Last Modified: | 02 Aug 2023 17:56 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/30413 |
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