Behavioural Credit Cycles
We explore the intertwined dynamics of asset prices and the macroeconomy in a Behavioural model of Credit Cycles (BCC) characterized by a credit friction à la Kiyotaki and Moore and heterogeneous expectations cum heuristic switching à la Brock and Hommes. This behavioural approach allows to better understand and replicate the effects of shocks. In the absence of actual defaults, following a positive productivity shock, our behavioural model (BCC Mark I) generates hump-shaped impulse-response functions that are more realistic than those generated by the same shock in a corresponding model with rational expectations (RCC). When the behavioural model allows also for defaults (BCC Mark II), a productivity shock triggers ample and persistent fluctuations (if the intensity of choice of the lender is sufficiently high), a feature that is absent in BCC Mark I (and of course in RCC).
Year of publication: |
2022
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Authors: | Gatti, Domenico Delli ; Iannotta, Gabriele |
Publisher: |
Munich : Center for Economic Studies and ifo Institute (CESifo) |
Subject: | credit market | collateral constraints | heterogeneous expectations | bankruptcy | boom bust cycles |
Saved in:
freely available
Series: | CESifo Working Paper ; 9954 |
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Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Working Paper |
Language: | English |
Other identifiers: | 1817947346 [GVK] hdl:10419/265989 [Handle] RePec:ces:ceswps:_9954 [RePEc] |
Classification: | E32 - Business Fluctuations; Cycles ; E44 - Financial Markets and the Macroeconomy ; D84 - Expectations; Speculations |
Source: |
Persistent link: https://www.econbiz.de/10013427740