Resolution of financial crises

Publikation: Bidrag til tidsskriftTidsskriftartikelfagfællebedømt

Standard

Resolution of financial crises. / Gonzalez-Eiras, Martin; Fanelli, Sebastian.

I: Journal of Economic Dynamics and Control, Bind 133, 104252, 11.10.2021, s. 1-28.

Publikation: Bidrag til tidsskriftTidsskriftartikelfagfællebedømt

Harvard

Gonzalez-Eiras, M & Fanelli, S 2021, 'Resolution of financial crises', Journal of Economic Dynamics and Control, bind 133, 104252, s. 1-28. https://doi.org/10.1016/j.jedc.2021.104252

APA

Gonzalez-Eiras, M., & Fanelli, S. (2021). Resolution of financial crises. Journal of Economic Dynamics and Control, 133, 1-28. [104252]. https://doi.org/10.1016/j.jedc.2021.104252

Vancouver

Gonzalez-Eiras M, Fanelli S. Resolution of financial crises. Journal of Economic Dynamics and Control. 2021 okt. 11;133:1-28. 104252. https://doi.org/10.1016/j.jedc.2021.104252

Author

Gonzalez-Eiras, Martin ; Fanelli, Sebastian. / Resolution of financial crises. I: Journal of Economic Dynamics and Control. 2021 ; Bind 133. s. 1-28.

Bibtex

@article{36bc8388e72543d0819521f750002038,
title = "Resolution of financial crises",
abstract = "A financial crisis creates substantial wealth losses. How these losses are allocated determines the magnitude of the crisis and the path to recovery. We study how institutions and technological factors that shape default and debt restructuring decisions affect the amplification of aggregate shocks. For sufficiently large shocks, agents renegotiate. This limits the losses borne by borrowers, shutting the amplification mechanism via asset prices. The range of shocks that trigger renegotiation is decreasing in repossession costs and increasing in default costs, if the latter are public information. Private information may induce equilibrium default but, by allowing agents with high default costs to extract a larger haircut, facilitates the recovery. The model is consistent with evidence from real estate markets in the U.S. during the Great Recession; and rationalizes recent changes in U.S. Bankruptcy Code in the wake of the COVID-19 crisis. ",
keywords = "Faculty of Social Sciences, financial crises, balance sheet recessions, default, renegotiation",
author = "Martin Gonzalez-Eiras and Sebastian Fanelli",
year = "2021",
month = oct,
day = "11",
doi = "10.1016/j.jedc.2021.104252",
language = "English",
volume = "133",
pages = "1--28",
journal = "Journal of Economic Dynamics and Control",
issn = "0165-1889",
publisher = "Elsevier",

}

RIS

TY - JOUR

T1 - Resolution of financial crises

AU - Gonzalez-Eiras, Martin

AU - Fanelli, Sebastian

PY - 2021/10/11

Y1 - 2021/10/11

N2 - A financial crisis creates substantial wealth losses. How these losses are allocated determines the magnitude of the crisis and the path to recovery. We study how institutions and technological factors that shape default and debt restructuring decisions affect the amplification of aggregate shocks. For sufficiently large shocks, agents renegotiate. This limits the losses borne by borrowers, shutting the amplification mechanism via asset prices. The range of shocks that trigger renegotiation is decreasing in repossession costs and increasing in default costs, if the latter are public information. Private information may induce equilibrium default but, by allowing agents with high default costs to extract a larger haircut, facilitates the recovery. The model is consistent with evidence from real estate markets in the U.S. during the Great Recession; and rationalizes recent changes in U.S. Bankruptcy Code in the wake of the COVID-19 crisis.

AB - A financial crisis creates substantial wealth losses. How these losses are allocated determines the magnitude of the crisis and the path to recovery. We study how institutions and technological factors that shape default and debt restructuring decisions affect the amplification of aggregate shocks. For sufficiently large shocks, agents renegotiate. This limits the losses borne by borrowers, shutting the amplification mechanism via asset prices. The range of shocks that trigger renegotiation is decreasing in repossession costs and increasing in default costs, if the latter are public information. Private information may induce equilibrium default but, by allowing agents with high default costs to extract a larger haircut, facilitates the recovery. The model is consistent with evidence from real estate markets in the U.S. during the Great Recession; and rationalizes recent changes in U.S. Bankruptcy Code in the wake of the COVID-19 crisis.

KW - Faculty of Social Sciences

KW - financial crises

KW - balance sheet recessions

KW - default

KW - renegotiation

U2 - 10.1016/j.jedc.2021.104252

DO - 10.1016/j.jedc.2021.104252

M3 - Journal article

VL - 133

SP - 1

EP - 28

JO - Journal of Economic Dynamics and Control

JF - Journal of Economic Dynamics and Control

SN - 0165-1889

M1 - 104252

ER -

ID: 283524595