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UID:27774375f6a4071bb46c2520183593be
CATEGORIES:Seminars
CREATED:20190429T103602
SUMMARY:Edouard Schaal - Centre de Recerca en Economia Internacional and Universitat Pompeu Fabra
DESCRIPTION;ENCODING=QUOTED-PRINTABLE:Herding Cycle joint with Mathieu Taschereau-Dumouchel\nAbstract:\nWe embed 
 a theory of rational herding into a business-cycle framework. In the model,
  technological innovations arrive randomly over time. New innovations are n
 ot immediately productive, and there is uncertainty about how productive th
 e technology will be. Investors receive private signals about the future pr
 oductivity and decide whether to invest in the technology or not. Macroecon
 omic variables and prices partially aggregate private information but do no
 t reveal the true fundamentals as the agents ignore the degree of correlati
 on in their information sets. Herd-driven boom-bust cycles may arise in thi
 s environment when the technology is unproductive but investors' initial si
 gnals are optimistic and highly correlated. When the technology appears, in
 vestors mistakenly attribute the observed high investment rates to high fun
 damentals, leading to a pattern of increasing optimism and investment until
  the economy reaches a peak, followed by a quick collapse, as agents ultima
 tely learn their mistake. As such, the theory can shed light on bubble-like
  episodes in which excessive optimism about uncertain technology fueled ove
 rinvestment, and were followed by sudden recessions. We calibrate the model
  to the U.S. economy and show that the theory can rationalize various patte
 rns observed during technology-driven cycles like the IT-led boom and bust 
 of 1995-2001. Finally, we show that leaning-against-the-wind policies can b
 e welfare improving as they can increase the amount of private information 
 that becomes public.\n
DTSTAMP:20260404T124209Z
DTSTART:20191021T163000Z
DTEND:20191021T180000Z
SEQUENCE:0
TRANSP:OPAQUE
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