Slow Boom, Big Crash
نویسنده
چکیده
Many asset markets exhibit a pattern of slow booms and sudden crashes. This paper presents an explanation for this unconditional asymmetry in asset price movements based on an endogenous speed of learning. In the model, more observable economic activity takes place in good times than in bad times. Since more observable activity generates more public information about the state of the economy, faster learning takes place in good times. Therefore, if the state of the economy changes when times are good and learning is fast, asset prices adjust quickly and a sudden crash occurs. When times are bad and learning is slower, agents take longer to discover that the economy has improved, and a more gradual boom ensues. The paper also presents data from U.S. and developingcountry credit markets that are consistent with the theory. ∗Many thanks to Paul Romer and Tom Sargent for their valuable advice and unwavering support. Thanks also to Beatrix Paal, Matt White, Paul Pfleiderer, Dirk Krueger, Darrell Duffie, Harrison Hong, Peter Henry, Joe Chen, Stijn Van Nieuwerburgh, Hanno Lustig, Lasse Pedersen, and participants in the Stanford macro lunch and macro reading group for their comments. All remaining errors are mine. Comments and suggestions are welcomed and can be sent to [email protected].
منابع مشابه
Slow boom, sudden crash
Many asset markets exhibit slow booms and sudden crashes. This pattern is explained by an endogenous flow of information. In the model, agents undertake more economic activity in good times than in bad. Economic activity generates public information about the state of the economy. If the economic state changes when times are good and information is abundant, asset prices adjust quickly and a su...
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