Creator: Chari, V. V. and Kehoe, Patrick J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 316 Abstract:
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.
Stichwort: Financial collapse, Capital flows, and Information cascades Fach: G15 - International Financial Markets, E32 - Business Fluctuations; Cycles, F40 - Macroeconomic Aspects of International Trade and Finance: General, F32 - Current Account Adjustment; Short-term Capital Movements, and F20 - International Factor Movements and International Business: General