1 option
A Model of Capital and Crises / Zhiguo He, Arvind Krishnamurthy.
- Format:
- Book
- Author/Creator:
- He, Zhiguo.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w14366.
- NBER working paper series no. w14366
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2008.
- Summary:
- We develop a model in which the capital of the intermediary sector plays a critical role in determining asset prices. The model is cast within a dynamic general equilibrium economy, and the role for intermediation is derived endogenously based on optimal contracting considerations. Low intermediary capital reduces the risk-bearing capacity of the marginal investor. We show how this force helps to explain patterns during financial crises. The model replicates the observed rise during crises in Sharpe ratios, conditional volatility, correlation in price movements of assets held by the intermediary sector, and fall in riskless interest rates.
- Notes:
- Print version record
- September 2008.
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