Balance sheet economics of the subprime mortgage crisis

Masako Tsujimura, Kazusuke Tsujimura

Research output: Contribution to journalArticle

5 Citations (Scopus)

Abstract

As Copeland (1947; 1952) demonstrated with his money-flows accounts more than half a century ago, the balance sheets of economic entities are closely interrelated through a lender-borrower relationship. 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.

Original languageEnglish
Pages (from-to)1-25
Number of pages25
JournalEconomic Systems Research
Volume23
Issue number1
DOIs
Publication statusPublished - 2011 Mar

Fingerprint

Subprime mortgages
Balance sheet
Economics
Pass-through
Net worth
Flow of funds
Assets
Ireland
Household
Money flows
Mortgages
Japan
Nonprofit organization

Keywords

  • Flow-of-funds accounts
  • Lender-borrower relationship
  • Leontief inverse

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

Balance sheet economics of the subprime mortgage crisis. / Tsujimura, Masako; Tsujimura, Kazusuke.

In: Economic Systems Research, Vol. 23, No. 1, 03.2011, p. 1-25.

Research output: Contribution to journalArticle

Tsujimura, Masako ; Tsujimura, Kazusuke. / Balance sheet economics of the subprime mortgage crisis. In: Economic Systems Research. 2011 ; Vol. 23, No. 1. pp. 1-25.
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