• Media type: Report; E-Book
  • Title: A critique of the literature on the US financial debt crisis
  • Contributor: Stein, Jerome L. [Author]
  • Published: Munich: Center for Economic Studies and ifo Institute (CESifo), 2010
  • Language: English
  • Keywords: Case-Shiller index ; warning signals of crisis ; Wirtschaftsindikator ; G12 ; C61 ; optimal leverage and debt ratios ; stochastic optimal control ; Kontrolltheorie ; Finanzmarktkrise ; Stochastischer Prozess ; mortgage and financial crises ; Congressional Oversight Panel ; G14 ; Kapitalstruktur ; Subprime-Hypothek ; Ito equation ; USA ; D91 ; Kritik ; Schulden ; G11 ; Immobilienpreis ; optimal dynamic risk management ; G10 ; [...]
  • Origination:
  • Footnote: Diese Datenquelle enthält auch Bestandsnachweise, die nicht zu einem Volltext führen.
  • Description: A healthy financial system encourages the efficient allocation of capital and risk. The collapse of the house price bubble led to the financial crisis that started in 2007. There is a large empirical literature concerning the relation between asset price bubbles and financial crises. I evaluate the key studies with the respect to the following questions. To what extent do the empirical relations in the existing literature help to identify asset price bubbles ex-ante or ex-post? Do the empirical studies have theoretical foundations? On the basis of that critique, I explain why the application of stochastic optimal control (SOC)/dynamic risk management is a much more effective approach to determine the optimal degree of leverage, the optimum and excessive risk and the probability of a debt crisis. The theoretically founded early warning signals of a crisis are shown to be superior, in general, to those empirical relations in the literature. Moreover the SOC analysis provides a theoretical explanation of the extent that the empirical measures in the literature can be useful.
  • Access State: Open Access