01747cas a2200253 a 4500 AALejournalIMF006601 230101c9999 xx r poo 0 0eng d 5.00 USD 9781455201754 1018-5941 BD-DhAAL BD-DhAAL Mendoza, Enrique. Financial Innovation, the Discovery of Risk, and the U.S. Credit Crisis / Enrique Mendoza, Emine Boz. Washington, D.C. : International Monetary Fund, 2010. 1 online resource (62 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Uncertainty about the riskiness of new financial products was an important factor behind the U.S. credit crisis. We show that a boom-bust cycle in debt, asset prices and consumption characterizes the equilibrium dynamics of a model with a collateral constraint in which agents learn "by observation" the true riskiness of a new financial environment. Early realizations of states with high ability to leverage assets into debt turn agents optimistic about the persistence of a high-leverage regime. The model accounts for 69 percent of the household debt buildup and 53 percent of the rise in housing prices during 1997-2006, predicting a collapse in 2007. Mode of access: Internet Boz, Emine. IMF Working Papers; Working Paper ; No. 2010/164 Full text available on IMF http://elibrary.imf.org/view/journals/001/2010/164/001.2010.issue-164-en.xml IMF e-Library