Collateral Equilibrium - A Basic Framework

John Geanakoplos and William Zame
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John Geanakoplos: Yale University

No 1319, EIEF Working Papers Series from Einaudi Institute for Economics and Finance (EIEF)

Abstract: Much of the lending in modern economies is secured by some form of collateral; residential and commercial mortgages and corporate bonds are familiar examples. This paper builds an extension of general equilibrium theory that incorporates durable goods, collateralized securities and the possibility of default to argue that the reliance on collateral to secure loans and the particular collateral requirements chosen by the social planner or by the market have a profound impact on prices, allocations, market structure and the efficiency of market outcomes. These findings provide insights into housing and mortgage markets, including the sub-prime mortgage market.

Pages: 59 pages
Date: 2013, Revised 2013-08
New Economics Papers: this item is included in nep-mic and nep-ure
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Citations: View citations in EconPapers (19)

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Related works:
Journal Article: Collateral equilibrium, I: a basic framework (2014)
Working Paper: Collateral Equilibrium: A Basic Framework (2013)
Working Paper: Collateral Equilibrium: A Basic Framework (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eie:wpaper:1319

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