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Groupthink: Collective Delusions in Organizations and Markets

Bénabou, Roland - C.E.P.R. Discussion Papers - 2009

I develop a model of (individually rational) collective reality denial in groups, organizations and markets. Whether participants' tendencies toward wishful thinking reinforce or dampen each other is shown to hinge on a simple and novel mechanism. When an agent can expect to benefit from other's...

Persistent link: https://www.econbiz.de/10005666620

The Dynamics of Financially Constrained Arbitrage

Gromb, Denis; Vayanos, Dimitri - C.E.P.R. Discussion Papers - 2015

We develop a model of financially constrained arbitrage, and use it to study the dynamics of arbitrage capital, liquidity, and asset prices. Arbitrageurs exploit price discrepancies between assets traded in segmented markets, and in doing so provide liquidity to investors. A collateral...

Persistent link: https://www.econbiz.de/10011184076

Liquidity Risk and the Dynamics of Arbitrage Capital

Kondor, Péter; Vayanos, Dimitri - C.E.P.R. Discussion Papers - 2014

We develop a dynamic model of liquidity provision, in which hedgers can trade multiple risky assets with arbitrageurs. We compute the equilibrium in closed form when arbitrageurs' utility over consumption is logarithmic or risk-neutral with a non-negativity constraint. Liquidity is increasing in...

Persistent link: https://www.econbiz.de/10011084683

Price Distortions in High-Frequency Markets

Steiner, Jakub; Stewart, Colin - C.E.P.R. Discussion Papers - 2014

We study the effect of frequent trading opportunities and categorization on pricing of a risky asset. Frequent opportunities to trade can lead to large distortions in prices if some agents forecast future prices using a simplified model of the world that fails to distinguish between some states....

Persistent link: https://www.econbiz.de/10011083554

Learning as a Rational Foundation for Macroeconomics and Finance

Evans, George W.; Honkapohja, Seppo - C.E.P.R. Discussion Papers - 2011

Expectations play a central role in modern macroeconomics. The econometric learning approach, in line with the cognitive consistency principle, models agents as forming expectations by estimating and updating subjective forecasting models in real time. This approach provides a stability test for...

Persistent link: https://www.econbiz.de/10009003380

Can the learnability criterion ensure determinacy in New Keynesian Models?

Minford, Patrick; Srinivasan, Naveen - C.E.P.R. Discussion Papers - 2012

Forward-looking RE models such as the popular New Keynesian (NK) model do not provide a unique prediction about how the model economy behaves. We need some mechanism that ensures determinacy. McCallum (2011) says it is not needed because models are learnable only with the determinate solution...

Persistent link: https://www.econbiz.de/10011083805

The more we know on the fundamental, the less we agree on the price

Kondor, Péter - C.E.P.R. Discussion Papers - 2011

I allow heterogenity in trading horizons across groups in a standard differential information model of a financial market. This can explain the empirical facts that after public announcements trading volume increases, more private information is incorporated into prices and volatility increases....

Persistent link: https://www.econbiz.de/10009144734

Bubbles and Central Banks: Historical Perspectives

Brunnermeier, Markus K; Schnabel, Isabel - C.E.P.R. Discussion Papers - 2015

This paper reviews some of the most prominent asset price bubbles from the past 400 years and documents how central … banks (or other institutions) reacted to those bubbles. The historical evidence suggests that the emergence of bubbles is … also suggests that a purely passive “cleaning up the mess” stance toward the buildup of bubbles is, in many cases, costly …

Persistent link: https://www.econbiz.de/10011249380

Theoretical Notes on Bubbles and the Current Crisis

Martin, Alberto; Ventura, Jaume - C.E.P.R. Discussion Papers - 2010

We explore a view of the crisis as a shock to investor sentiment that led to the collapse of a bubble or pyramid scheme in financial markets. We embed this view in a standard model of the financial accelerator and explore its empirical and policy implications. In particular, we show how the...

Persistent link: https://www.econbiz.de/10008684673

Are Banks Passive Liquidity Backstops? Deposit Rates and Flows during the 2007-2009 Crisis

Acharya, Viral V; Mora, Nada - C.E.P.R. Discussion Papers - 2011

Can banks maintain their advantage as liquidity providers when they are heavily exposed to a financial crisis? The standard argument - that banks can - hinges on deposit inflows that are seeking a safe haven and provide banks with a natural hedge to fund drawn credit lines and other commitments....

Persistent link: https://www.econbiz.de/10009399713

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