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SUMMARY:Rational Sentiments and Economic Cycles
DTSTART:20210305T150000
DTEND:20210305T163000
DTSTAMP:20260407T043739Z
UID:57d02eccb3b6c40c8d24bd568d4417899fb76673285816e774c0c790
CATEGORIES:Conferences - Seminars
DESCRIPTION:Maryam FARBOODI\, MIT\nWe propose a rational model of endogeno
 us cycles generated by the two-way interaction between credit market senti
 ments and real outcomes. Sentiments are high when most lenders optimally c
 hoose lax lending standards. This leads to low interest rates and high out
 put growth\, but also to the deterioration of future credit application qu
 ality. When the quality is sufficiently low\, lenders endogenously switch 
 to tight standards\, i.e. sentiments become low. This implies high credit 
 spreads and low output\, but a gradual improvement in the quality of appli
 cations\, which eventually triggers a shift back to lax lending standards 
 and the cycle continues. The equilibrium cycle might feature a long boom\,
  a lengthy recovery\, or a double-dip recession. It is generically differe
 nt from the optimal cycle as atomistic lenders ignore their effect on the 
 composition of the pool of borrowers. Carefully chosen macro-prudential or
  counter- cyclical monetary policy often improves the decentralized equili
 brium cycle.
LOCATION:Zoom
STATUS:CONFIRMED
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