Resolution of financial crises
Date
2019-08
Authors
Fanelli, Sebastián
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Gonzalez-Eiras, Martín
Journal Title
Journal ISSN
Volume Title
Publisher
Universidad de San Andrés. Departamento de Economía
Abstract
A financial crisis creates substantial wealth losses. How these losses are allocated is
central to determine 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 and persistence of aggregate shocks. For large enough
shocks, agents renegotiate. This limits the losses borne by borrowers, accelerating the
recovery. The set of shocks that triggers renegotiation is decreasing in repossession costs
and increasing in default costs, if the latter are public information. Private information
about default costs leads to “V-shaped” recoveries: equilibrium default depresses output
on impact, but by shielding borrowers’ net worth facilitates the recovery. These results
are consistent with evidence from real estate markets in the U.S. during the Great
Recession, and with features of the crises of Japan and South East Asia in the 1990s.
Keywords: Financial crises; balance sheet recessions; default; renegotiation.
Keywords: Financial crises; balance sheet recessions; default; renegotiation.
Description
Fil: Fanelli, Sebastián. Universidad de San Andrés. Departamento de Economía; Argentina.
Keywords
Citation
Fanelli, S. (2019). Resolution of financial crises. [Tesis de maestría, Universidad de San Andrés. Departamento de Economía]. Repositorio Digital San Andrés. http://hdl.handle.net/10908/17700