01 gennaio 2013

T. Assenza, W. A. Brock, C. H. Hommes

ABSTRACT
We introduce a simple equilibrium model of a market for loans, where house-
holds lend to rms based on heterogeneous expectations about their loan default
probability. Agents select among heterogeneous expectation rules, based upon
their relative performance. A small fraction of pessimistic traders already has
a large aggregate e ect, leading to a crisis characterized by high contract rates
for loans and low output. Our stylized model illustrates how animal spirits and
heterogeneous expectations amplify boom and bust cycles and how endogenous
coordination on pessimistic expectations ampli es crises and slows down recovery.
Taking heterogeneous expectations and bounded rationality into account is crucial
for the timing of monetary or scal policy.

Keywords: Heterogeneous Expectations, Crises, Animal Spirits
JEL Codes:E32, D83, D84

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