Leverage Cycles and the Anxious Economy
Ana Fostel and John Geanakoplos
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| Article Citation |
Fostel, Ana, and John Geanakoplos. 2008. "Leverage Cycles and the Anxious Economy." American Economic Review, 98(4): 1211–44.
DOI:10.1257/aer.98.4.1211
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| Abstract |
We provide a pricing theory for emerging asset classes, like emerging markets,
that are not yet mature enough to be attractive to the general public. We
show how leverage cycles can cause contagion, flight to collateral, and issuance
rationing in a frequently recurring phase we call the anxious economy.
Our model provides an explanation for the volatile access of emerging economies
to international financial markets, and for three stylized facts we identify
in emerging markets and high yield data since the late 1990s. Our analytical
framework is a general equilibrium model with heterogeneous agents, incomplete
markets, and endogenous collateral, plus an extension encompassing
adverse selection. (JEL D53, G12, G14, G15)
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| Article Full-Text Access |
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| Additional Materials |
Data Availability
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| Authors |
Fostel, Ana (George Washington U)
Geanakoplos, John (Yale U and Santa Fe Institute)
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| JEL Classifications |
D53: General Equilibrium and Disequilibrium: Financial Markets
G12: Asset Pricing; Trading volume; Bond Interest Rates
G14: Information and Market Efficiency; Event Studies
G15: International Financial Markets
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