Balance Sheet Economics of the Subprime Mortgage Crisis

Masako Tsujimura
Kazusuke Tsujimura
Publication Type: 
Papers
Journal Name: 
Economic Systems Research
Journal Volume: 
23
Journal Number: 
1
Pages: 
1-25
Publication Year: 
2011

This paper is an attempt to describe the US subprime mortgage crisis in the framework of ‘balance sheet economics’, which was originally proposed by Stone (1966) and Klein (1977; 1983). Since it is almost impossible to collect all the balance sheets of economic entities, we use flow-of-funds accounts instead to simulate the negative consequences resulting from home mortgage delinquencies. We show that the pass-through sequence converges when the original delinquency is made up by loss of net worth in any of the economic entities. Most of the eventual loss is incurred by ‘Households and Nonprofit Organizations’ and ‘Rest of the World’. A portion of pass-through loss is eventually incurred by foreign countries with excess external assets, such as Japan, Ireland, etc.

This paper was presented at the Flow of Funds Accounts and Savings Workshop in April of 2012. The corresponding presentation and discussion are also available.

Region: 
Global
Country: 
USA
Topic: 
Flow of Funds
Topic: 
Economic Modeling