Financial Crises as Herds: Overturning the Critiques / V. V. Chari, Patrick J. Kehoe.

Format:

Book

Author/Creator:

Chari, V. V.

Contributor:

National Bureau of Economic Research.

Kehoe, Patrick J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9658.

NBER working paper series no. w9658

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Financial Crises as Herds

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Summary:

Financial crises are widely argued to be due to herd behavior. Yet recently developed models of herd behavior have been subjected to two critiques which seem to make them inapplicable to financial crises. Herds disappear from these models if two of their unappealing assumptions are modified: if their zero-one investment decisions are made continuous and if their investors are allowed to trade assets with market-determined prices. However, both critiques are overturned---herds reappear in these models---once another of their unappealing assumptions is modified: if, instead of moving in a prespecified order, investors can move whenever they choose.

Notes:

Print version record

April 2003.