IDEAS home Printed from https://ideas.repec.org/p/eti/dpaper/11010.html
   My bibliography  Save this paper

A Model of Financial Crises: Coordination failure due to bad assets

Author

Listed:
  • KOBAYASHI Keiichiro

Abstract

This paper constructs a model of financial crises that can explain characteristic features of the global financial crisis of 2008-2009, namely, the widespread freezing of asset transactions, the sharp contraction of aggregate output, and a deterioration in the labor wedge. This paper assumes that banks sell corporate bonds in the interbank market to raise money for short-term loans. The emergence of bad assets subsequent to the collapse of the asset-price bubble and asymmetric information among banks causes a freezing in the asset trading among banks (the market for lemons). Market freezing constrains the availability of bank loans as working capital for productive firms, causing output and the labor wedge to deteriorate. Given the market freeze, no proper incentives exist for banks to reveal their bad assets and dispose of them.

Suggested Citation

  • KOBAYASHI Keiichiro, 2011. "A Model of Financial Crises: Coordination failure due to bad assets," Discussion papers 11010, Research Institute of Economy, Trade and Industry (RIETI).
    • Handle: RePEc:eti:dpaper:11010
    as

    Download full text from publisher

    File URL: https://www.rieti.go.jp/jp/publications/dp/11e010.pdf
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Keiichiro Kobayashi & Daichi Shirai, 2017. "Debt-Ridden Borrowers and Economic Slowdown," CIGS Working Paper Series 17-002E, The Canon Institute for Global Studies.
    2. Keiichiro Kobayashi & Daichi Shirai, 2012. "Debt-Ridden Borrowers and Productivity Slowdown," CIGS Working Paper Series 14-005E, The Canon Institute for Global Studies.
    3. Anna Watson, 2019. "Financial Frictions, the Great Trade Collapse and International Trade over the Business Cycle," Open Economies Review, Springer, vol. 30(1), pages 19-64, February.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eti:dpaper:11010. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: TANIMOTO, Toko (email available below). General contact details of provider: https://edirc.repec.org/data/rietijp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.