Time: 16:40~18:10, Tue, 2018/11/13
Place: E-E-211
Presenter: Prof. Hiroki Fukai (Kyushu University)
Title: A Model of Collateral
Abstract:
This paper presents a simple equilibrium model in which collateralized
credit emerges endogenously. Agents cannot commit to the use of collateral
as a guarantee of repayment, and both lenders and borrowers have
incentives to renege. Our theory provides a micro-foundation to justify
the borrowing constraints that are widely used in the existing
macroeconomic models. We explain why assets are often used as collateral,
rather than as a means of payment, even when these assets can be traded on
markets, why there is a tradeoff in assets between return and liquidity,
and what kinds of assets are useful as collateral.