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    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: School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Arup Daripa
    Date Deposited: 06 Jan 2020 10:31
    Last Modified: 13 Feb 2021 22:24
    URI: https://eprints.bbk.ac.uk/id/eprint/30413

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