We show how the timing of financial innovation might have contributed to the mortgage bubble and then to the crash of … 2007-2009. We show why tranching and leverage first raised asset prices and why CDS lowered them afterwards. This may seem … puzzling, since it implies that creating a derivative tranche in the securitization whose payoffs are identical to the CDS will …

-2009. We study the effect of leverage, tranching, securitization and CDS on asset prices in a general equilibrium model with … collateral. We show why tranching and leverage tend to raise asset prices and why CDS tend to lower them. This may seem puzzling …We show how the timing of financial innovation might have contributed to the mortgage boom and then to the bust of 2007 …

We discuss how leverage can be monitored for institutions, individuals, and assets. While traditionally the interest … rate has been regarded as the important feature of a loan, we argue that leverage is sometimes even more important …. Monitoring leverage provides information about how risk builds up during booms as leverage rises and how crises start when …

change in fundamentals. In C-models, the ability to leverage an asset always generates over-investment compared to Arrow … robustly destroys competitive equilibrium. The need for collateral would seem to cause under-investment. Our analysis … illustrates a countervailing force: goods that serve as collateral yield additional services and are therefore over-valued and …

We show that financial innovations that change the collateral capacity of assets in the economy can affect investment … even in the absence of any shift in utilities, productivity, or asset payoffs. First we show that the ability to leverage …

change in fundamentals. In C-models, the ability to leverage an asset always generates over-investment compared to Arrow … robustly destroys competitive equilibrium. The need for collateral would seem to cause under-investment. Our analysis … illustrates a countervailing force: goods that serve as collateral yield additional services and are therefore over-valued and …

We show that financial innovations that change the collateral capacity of assets in the economy can affect investment … even in the absence of any shift in utilities, productivity, or asset payoffs. First we show that the ability to leverage …

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 …

collateral to back financial contracts. Financially integrated countries have access to the same set of financial instruments, and … yet there is no price convergence of assets with identical payoffs, due to a gap in collateral values. Home (financially … driven by collateral differences collapse following bad news about fundamentals. Our results can explain financial flows among …

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 …