Animal Spirits, Heterogeneous Expectations and the Amplification and Duration of Crises

Tiziana Assenza, William A. Brock, Cars H. Hommes

Risultato della ricerca: Working paper


We introduce a simple equilibrium model of a market for loans. Households lend to firms and form expectations about their loan default probability. Under heterogeneous expectations, with switching between forecasting strategies driven by reinforcement learning, even a small fraction of pessimistic traders has a large aggregate effect, causing a heterogeneous expectations risk premium, i.e. significantly higher contract rates for loans and significantly lower output. Our stylized model illustrates how animal spirits and heterogeneous expectations may lead to a confidence loss and to financial instability amplifying the magnitude of economic crises and slowing down recovery.
Lingua originaleEnglish
Numero di pagine39
Stato di pubblicazionePubblicato - 2012


  • Animal spirits
  • Crises
  • Heterogeneous expectations

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