A recent literature shows how an increase in volatility reduces leverage. However, in order to explain pro …-cyclical leverage it assumes that bad news increases volatility, that is, it assumes an inverse relationship between first and second … volatility. We show that, in a model with endogenous leverage and heterogeneous beliefs, agents have the incentive to invest …

A recent literature shows how an increase in volatility reduces leverage. However, in order to explain pro …-cyclical leverage it assumes that bad news increases volatility, that is, it assumes an inverse relationship between first and second … volatility. We show that, in a model with endogenous leverage and heterogeneous beliefs, agents have the incentive to invest …

serving as collateral. First, our Binomial No-Default Theorem states that any equilibrium is equivalent (in real allocations …-default equilibrium would be selected if there were the slightest cost of using collateral or handling default. Second, our Binomial … asset to the riskless rate of interest. Finally, our Binomial Leverage-Volatility theorem provides a precise link between …

The literature on leverage until now shows how an increase in volatility reduces leverage. However, in order to explain … pro-cyclical leverage it assumes that bad news increases volatility. This paper suggests a reason why bad news is more … often than not associated with higher future volatility. We show that, in a model with endogenous leverage and heterogeneous …

The literature on leverage until now shows how an increase in volatility reduces leverage. However, in order to explain … pro-cyclical leverage it assumes that bad news increases volatility. This paper suggests a reason why bad news is more … often than not associated with higher future volatility. We show that, in a model with endogenous leverage and heterogeneous …

serving as collateral. Our Binomial No-Default Theorem states that any equilibrium is equivalent (in real allocations and …-default equilibria would be selected if there were the slightest cost of using collateral or handling default. Our Binomial Leverage … volatility. …

leverage and collateral equilibrium: endogenous leverage can be highly volatile, but it is always easy to compute. The … possibility of default can have a dramatic effect on equilibrium, if collateral is scarce, yet we prove the No-Default Theorem …

leverage emerges in equilibrium at the maximum level such that VaR = 0, so there is no default in equilibrium, provided that … agents get no utility from holding the collateral. When the collateral does affect utility (as with housing) or when agents … have sufficiently heterogenous beliefs over three or more states, VaR = 0 fails to hold in equilibrium. We study commonly …

serving as collateral. Our Binomial No-Default Theorem states that any equilibrium is equivalent (in real allocations and …-default equilibria would be selected if there were the slightest cost of using collateral or handling default. Our Binomial Leverage … volatility. …

model with collateral. This paper develops a general-equilibrium framework to explore QE's international transmission … involving an advanced economy (AE) and an emerging market economy (EM) whose assets have less collateral capacity. Capital flows … arise as a result of international sharing of scarce collateral. The crucial insight is that private AE agents adjust their …