Abstract

http://ssrn.com/abstract=1473918
 
 

References (47)



 
 

Citations (16)



 


 



The 'Surprising' Origin and Nature of Financial Crises:
A Macroeconomic Policy Proposal


Ricardo J. Caballero


Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Pablo D. Kurlat


Stanford University - Department of Economics

September 14, 2009

MIT Department of Economics Working Paper No. 09-24

Abstract:     
Severe financial crises in developed economies are produced by a combination of three factors: negative surprises that create uncertainty, concentration of macroeconomic risk in leveraged financial institutions and a slow policy response. We propose a policy instrument, Tradable Insurance Credits (TICs), designed to address crises stemming from these factors. TICs would be issued by the central bank and give their holder the right to attach a central bank guarantee to assets on its balance sheet, but only during a financial crisis; financial institutions would be required to keep a minimum holding of TICs. TIC policy could be carried out in a similar way to monetary policy and fits into existing institutional frameworks; we examine how TICs could have been used to address the 2007-2009 financial crisis in a faster and more systematic way than the ad-hoc measures undertaken.

Number of Pages in PDF File: 40

Keywords: financial crises, Knightian uncertainty, macroeconomic risk, credit default swaps, asset insurance

JEL Classification: G01, G28, E58

working papers series


Download This Paper

Date posted: September 15, 2009  

Suggested Citation

Caballero, Ricardo J. and Kurlat, Pablo D., The 'Surprising' Origin and Nature of Financial Crises: A Macroeconomic Policy Proposal (September 14, 2009). MIT Department of Economics Working Paper No. 09-24. Available at SSRN: http://ssrn.com/abstract=1473918 or http://dx.doi.org/10.2139/ssrn.1473918

Contact Information

Ricardo J. Caballero (Contact Author)
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
50 Memorial Drive
E52-252A
Cambridge, MA 02142
United States
617-253-0489 (Phone)
617-253-1330 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Pablo D. Kurlat
Stanford University - Department of Economics ( email )
Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
Feedback to SSRN


Paper statistics
Abstract Views: 3,175
Downloads: 653
Download Rank: 21,218
References:  47
Citations:  16

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.328 seconds