Arbeitspapier
Fragility of resale markets for securitized assets and policy of asset purchases
Markets for securitized assets were characterized by high liquidity prior to the recent financial crisis and by a sudden market dry-up at the onset of the crisis. A general equilibrium model with heterogeneous investment opportunities and information frictions predicts that, in boom periods or mild recessions, the degree of adverse selection in resale markets for securitized assets is limited because of the reputation-based guarantees by asset originators. This supports investment and output. However, in a deep recession, characterized by high dispersion of asset qualities, there is a sudden surge in adverse selection due to an economy-wide default on reputation-based guarantees, which persistently depresses the output in the economy. Government policy of asset purchases limits the negative effects of adverse selection on the real economy, but may create a negative moral hazard problem.
- Language
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Englisch
- Bibliographic citation
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Series: Bank of Canada Staff Working Paper ; No. 2016-46
- Classification
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Wirtschaft
Business Fluctuations; Cycles
Financial Crises
- Subject
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Business fluctuations and cycles
Economic models
Credit and credit aggregates
Financial markets
Financial stability
Financial system regulation and policies
- Event
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Geistige Schöpfung
- (who)
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Kuncl, Martin
- Event
-
Veröffentlichung
- (who)
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Bank of Canada
- (where)
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Ottawa
- (when)
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2016
- DOI
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doi:10.34989/swp-2016-46
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Kuncl, Martin
- Bank of Canada
Time of origin
- 2016
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