At the micro-economic level, deleveraging refers to the reduction of the leverage ratio, or the percentage of debt in the balance sheet of a single economic entity, such as a household or a firm. It is the opposite of leveraging, which is the practice of borrowing money to acquire assets and multiply gains and losses.
At the macro-economic level, deleveraging of an economy refers to the simultaneous reduction of debt levels in multiple sectors, including private sectors and the government sector. It is usually measured as a decline of the total debt to GDP ratio in the national accounts. The deleveraging of an economy following a financial crisis has significant macro-economic consequences and is often associated with severe recessions.
While leverage allows a borrower to acquire assets and multiply gains in good times, it also leads to multiple losses in bad times. During a market downturn when the value of assets and income plummets, a highly leveraged borrower faces heavy losses due to his or her obligation to the service of high levels of debt. If the value of assets falls below the value of debt, the borrower then has a high risk to default. Deleveraging reduces the total amplification of market volatility on the borrower's balance sheet. It means giving up potential gains in good times, in exchange for lower risk of heavy loss and nasty default in bad times.
However, precaution is not the most common reason for deleveraging. Deleveraging usually happens after a market downturn and hence is driven by the need to cover loss, which can deplete capital, build a less risky profile, or is required by nervous lenders to prevent default. In the last case, lenders lower the leverage offered by asking for a higher level of collateral and down payment. It is estimated that from 2006 to 2008, the average down payment required for a home buyer in the US increased from 5% to 25%, a decrease of leverage from 20 to 4.
To deleverage, one needs to raise cash to pay debt, either from raising capital or selling assets or both.
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vignette|upright=1.3|Croissance réelle du PIB en 2009. Les pays en marron sont en récession. La crise économique mondiale de 2008, quelquefois appelée dans le monde anglophone Grande Récession (Great Recession, en référence à la Grande Dépression de 1929), est une récession dans laquelle sont entrés la plupart des pays industrialisés du monde, mis à part le Brésil, la Chine et l'Inde, à la suite du krach de l'automne 2008, lui-même consécutif de la crise des subprimes de 2006-2007.
La finance de l'ombre (en anglais : shadow banking), ou encore système bancaire parallèle, désigne l'ensemble des activités et des acteurs contribuant au financement du système économique et ne sont pas des banques. L'expression de ne renvoie donc pas aux activités hors bilan des banques. Le shadow banking est défini comme par le Conseil de stabilité financière. L'expression est cependant hautement ambiguë. Ainsi Jean Tirole la définit comme étant , qui peut s'opérer via des activités hors bilan.
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This is a PhD course on recursive methods used in modern macroeconomics. Recursive
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