Herding cycles
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- dc.contributor.author Schaal, Edouard
- dc.contributor.author Taschereau-Dumouchel, Mathieu
- dc.contributor.other Universitat Pompeu Fabra. Departament d'Economia i Empresa
- dc.date.accessioned 2024-11-14T10:09:54Z
- dc.date.available 2024-11-14T10:09:54Z
- dc.date.issued 2020-01-02
- dc.date.modified 2024-11-14T10:07:02Z
- dc.description.abstract This paper explores whether rational herding can generate endogenous aggregate fluctuations. We embed a tractable model of rational herding into a business cycle framework. In the model, technological innovations arrive with unknown qualities, and agents have dispersed information about how productive the technology really is. Rational investors decide whether to invest based on their private information and the investment behavior of others. Herd-driven boom-bust cycles arise endogenously in this environment when the technology is unproductive but investors' initial information is overly optimistic. Their overoptimism leads to high investment rates, which investors mistakenly attribute to good fundamentals, leading to a selfreinforcing pattern of higher optimism and higher investment until the economy reaches a peak, followed by a crash when agents ultimately realize their mistake. We calibrate the model to the U.S. economy and show that it can broadly explain boom-and-bust cycles like the dot-com bubble of the 1990s.
- dc.format.mimetype application/pdf*
- dc.identifier https://econ-papers.upf.edu/ca/paper.php?id=1714
- dc.identifier.citation Journal of Economic Theory 210 (2023) 105669
- dc.identifier.uri http://hdl.handle.net/10230/44754
- dc.language.iso eng
- dc.relation.ispartofseries Economics and Business Working Papers Series; 1714
- dc.rights L'accés als continguts d'aquest document queda condicionat a l'acceptació de les condicions d'ús establertes per la següent llicència Creative Commons
- dc.rights.accessRights info:eu-repo/semantics/openAccess
- dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
- dc.subject.keyword endogenous business cycles
- dc.subject.keyword information cascade
- dc.subject.keyword social learning
- dc.subject.keyword imperfect information
- dc.subject.keyword boom-and-bust
- dc.subject.keyword Macroeconomics and International Economics
- dc.title Herding cycles
- dc.title.alternative Herding through booms and busts
- dc.type info:eu-repo/semantics/workingPaper