Yamada Tomoaki    Department   Undergraduate School  , School of Commerce    Position   Professor
Language	English
Publication Date	2010/10
Type	Academic Journal
Title	Can Cross-Border Financial Markets Create Good Collateral in Crisis?
Contribution Type	Co-authored (other than first author)
Journal	IMES Discussion Paper Series
Volume, Issue, Page	E-19,pp.1-32
Author and coauthor	Makoto Saito, Shiba Suzuki
Details	In this paper, we explore whether markets can create endogenously good collateral in a crisis by analyzing a simple exchange economy where a country-specific catastrophic shock is shared between two countries. To see this possibility, we examine whether the equilibrium achieved by the time-0 complete markets with solvency constraints can be recovered in the dynamically complete markets with collateral constraints. This paper demonstrates that it is possible to recover the time-0 equilibrium outcome in a sequential manner when pricing errors occur randomly in evaluating Lucas trees at a catastrophic event. Such stochastic components may be interpreted as a policy initiative to create good collateral and yield constrained efficient outcomes at crisis periods.