Series: IMF Working Papers
Author(s): Woon Choi , and David Cook
Publisher: INTERNATIONAL MONETARY FUND
Publication Date: 01 June 2010
Keywords: fire sales, financial accelerator, endogenous recovery rate, financial shock, liquidity spiral, collateral, inflation, monetary policy, inflation targeting, real interest rates
During periods of financial turmoil, increases in risk lead to higher default, foreclosure, and fire sales. This paper introduces a costly liquidation process for foreclosed collateral and endogenous recovery rates...