Ambiguity attitudes and the leverage cycle

• 成果类型: Article
• 署名作者: Bassanin, Marzio; Faia, Ester; Patella, Valeria
• 署名单位: Bank of England; Goethe University Frankfurt; Center for Economic & Policy Research (CEPR); Sapienza University Rome
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2021.103436
• 发表日期: 2021
• 关键词: Ambiguity attitudes; occasionally binding constraints; Kinked beliefs; Leverage cycle; Optimism and pessimism; Sudden reversals

摘要

Financial crises originate in debt markets, where beliefs formation about asset values affects the value of collateral, hence the leverage cycles. We introduce novel state-contingent ambiguity attitudes, which endogenously induce pessimism in recessions and optimism in booms, in a model with occasionally binding collateral constraints and exogenous debt supply. Ambiguity is measured in the data through GMM estimation of the Euler equations, and delivers over extrapolative behaviors through forecasters' beliefs' wedges and forecast errors. Analytically and numerically (global methods), it is shown that the model explains asset price and debt cycle facts. Optimism heightens the build-up of debt and asset prices prior to a crisis event and enhances leverage pro-cyclicality; pessimism heightens the de-leveraging following it. (c) 2021 Elsevier B.V. All rights reserved.