Discussion of “ The Leverage Cycle ” by John Geanakoplos ∗ Hyun Song Shin
نویسندگان
چکیده
John Geanakoplos deserves credit for having blazed the trail on the analysis of leverage and collateral, and their crucial impact on the workings of the financial system. His 1997 paper “Promises, Promises” was a milestone in the way that it brought together the institutions and practices that underpin modern capital markets with rigorous general equilibrium theory. It is also famous as an engrossing autobiography of the twists and turns in the route by which a theorist became a mortgage hedge fund principal. The discussion reflects the authoritative insights of a market professional as well as that of an economic theorist a rare combination indeed. He has subsequently developed and refined the approach in several additional contributions. His 2000 Econometric Society World Congress lecture in Seattle (published as Geanakoplos (2003)) anticipates many of the ingredients of the current paper, further developed to incorporate shifts in belief and endowments in a dynamic economy in Fostel and Geanakoplos (2008). In developing these ideas, he has been way ahead of the pack. Indeed, until recently, there was no pack. He was so far ahead of the curve that his early contributions did not attract the attention of the broader profession (outside the group of general equilibrium theorists) until the real world caught up with the theory. The financial crisis has changed everything, and his work is now center stage, as it deserves. The theoretical framework developed by Geanakoplos reflects the intellectual pedigree from general equilibrium theory, especially the field of general
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