Working Paper: NBER ID: w14739
Authors: Douglas W. Diamond; Raghuram Rajan
Abstract: What caused the financial crisis that is sweeping across the world? What keeps asset prices and lending depressed? What can be done to remedy matters? While it is too early to arrive at definite answers to these questions, it is certainly time to offer informed conjectures, and these are the focus of this paper.
Keywords: No keywords provided
JEL Codes: E52; F33; G21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| misallocation of resources in the US financial sector (F65) | financial crisis (G01) |
| exotic financial instruments (G15) | financial crisis (G01) |
| short-term debt (H63) | excessive risk-taking by banks (G21) |
| excessive risk-taking by banks (G21) | financial crisis (G01) |
| reliance on short-term debt (G32) | fragile banking environment (F65) |
| fragile banking environment (F65) | liquidity issues (G33) |
| falling house prices (R31) | defaults increase (Y60) |
| defaults increase (Y60) | mortgage-backed securities lose value (G21) |
| mortgage-backed securities lose value (G21) | strain on banks (G21) |
| financial system's structure (P34) | reliance on short-term leverage (G32) |
| reliance on short-term leverage (G32) | unsustainability in market conditions (D52) |