Published in:Tinbergen Institute Discussion Paper 13-205/II
Extent:
1 Online-Ressource (39 p)
Language:
English
DOI:
10.2139/ssrn.2369806
Identifier:
Origination:
Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments December 19, 2013 erstellt
Description:
We introduce a simple equilibrium model of a market for loans, where households lend to firms based on heterogeneous expectations about their loan default probability. Agents select among heterogeneous expectation rules, based upon their relative performance. A small fraction of pessimistic traders already has a large aggregate effect, leading to a crisis characterized by high contract rates for loans and low output. Our stylized model illustrates how animal spirits and heterogeneous expectations amplify boom and bust cycles and how endogenous coordination on pessimistic expectations amplifies crises and slows down recovery