Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/162674 
Authors: 
Year of Publication: 
2017
Series/Report no.: 
ECB Working Paper No. 2039
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
This paper develops a theory of the credit cycle to account for recent evidence that capital is increasingly allocated to inefficiently risky projects over the course of the boom. The model features lenders who sell risk exposure to non-lender investors in order to relax borrowing constraints, but are tempted to produce and sell off bad assets when asset prices are sufficiently high. Asset prices gradually increase during the boom because non-lender wealth grows as their risk-taking pays off, triggering a fall in asset quality and precipitating an eventual crisis. I study the initial conditions that give rise to the credit cycle and consider policy implications.
Subjects: 
secondary markets
securitization
credit cycles
financial crisis
financial fragility
credit booms
saving gluts
risk-taking channel of monetary policy
JEL: 
G01
E32
E44
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-2761-1
Document Type: 
Working Paper

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.