State Contingent Assets, Financial Crises and Pecuniary Externalities in Models with Collateral Constraints

Rocio Gondo Mori

No 2014-001, Working Papers from Banco Central de Reserva del Perú

Abstract: This paper analyzes the effect of developing financial markets for contingent assets on the degree of risk sharing and its ability to reduce spillover effects due to credit externalities. In an environment with persistent shocks and collateral constraints, state contingent assets allow for partial hedging against income fluctuations, which reduce the need for precautionary savings and lower the incidence of financial crises. In addition, these assets reduce the size of spillover effects of individual leverage on the valuation of the collateral constraint of other agents, but is not able to fully correct the pecuniary externality. Private agents take too little state contingent debt by ignoring the larger hedging properties of this instrument against the debt deflation mechanism.

Date: 2014-02
New Economics Papers: this item is included in nep-ban, nep-cba, nep-lam, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.bcrp.gob.pe/docs/Publicaciones/Documen ... -trabajo-01-2014.pdf Application/pdf

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rbp:wpaper:2014-001

Access Statistics for this paper

More papers in Working Papers from Banco Central de Reserva del Perú Contact information at EDIRC.
Bibliographic data for series maintained by Research Unit ().