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SUMMARY:The Risk of Risk-Sharing: Diversification and Boom-Bust Cycles
DTSTART:20191101T103000
DTEND:20191101T120000
DTSTAMP:20260501T072731Z
UID:85aa85af308ccaafd277a64aecbea0f3593ed534bf389f40d02a2036
CATEGORIES:Conferences - Seminars
DESCRIPTION:Paymon KHORRAMI\, The University of Chicago\nIn this paper\, I
  model a shock whereby financial intermediaries can better diversify borro
 wers’ idiosyncratic risks. A sector-specific diversification improvement
  induces intermediaries to reallocate funds toward the shocked sector. As 
 lending spreads fall\, intermediaries build up leverage over time. The res
 ult is a fragile sectoral boom that can end in an economy-wide bust. This 
 cycle is amplified if the diversification-shocked sector is higher-risk or
  more external-finance dependent. I apply the model quantitatively to the 
 recent housing cycle. Feeding in a novel mortgage diversification index\, 
 the model generates the measured increase in household credit coincident w
 ith a 1-2% decline in mortgage spreads. In the subsequent bust\, spreads i
 n all sectors spike by 2% as aggregate output drops.\n 
LOCATION:UNIL\, Extranef\, room 126 https://planete.unil.ch/plan/?local=EX
 T-126
STATUS:CONFIRMED
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