We study herd behavior in a laboratory financial market with financial market professionals. We compare two treatments, one in which the price adjusts to the order flow so that herding should never occur, and one in which event uncertainty makes herding possible. In the first treatment, subjects...

Following record low interest rates and fast depreciating U.S. dollar, crude oil prices became under rising pressure and seemed boundless. Oil price process parameters changed drastically in 2003M5-2007M10 toward consistently rising prices. Short-term forecasting would imply persistence of...

This paper identifies and describes key features of Caribbean business cycles during the period 1963-2003. In particular, the chronologies in the Caribbean classical cycle (expansions and contractions in the level of output) and growth cycle (periods of above-trend and below-trend rates of...

We study a banking model in which banks invest in a riskless asset and compete in both deposit and risky loan markets. The model predicts that as competition increases, both loans and assets increase; however, the effect on the loans-to-assets ratio is ambiguous. Similarly, as competition...

Consensus estimates put the half-life of deviations from purchasing power parity (PPP) at about four years (Rogoff, 1996). However, conventional least squares estimates of half-lives are biased downward. Accordingly, as a preferred measure of the persistence of real exchange rate shocks, this...

This paper studies two new models in which banks face a non-trivial asset allocation decision. The first model (CVH) predicts a negative relationship between banks' risk of failure and concentration, indicating a trade-off between competition and stability. The second model (BDN) predicts a...

We develop a new methodology to estimate the importance of herd behavior in financial markets: we build a structural model of informational herding that can be estimated with financial transaction data. In the model, rational herding arises because of information-event uncertainty. We estimate...