Template-Type: ReDIF-Paper 1.0

Author-Name: Domenico Delli Gatti
Author-X-Name-First: Domenico
Author-X-Name-Last: Delli Gatti
Author-Email: domenico.delligatti@unicatt.it
Author-Workplace-Name: Università Cattolica del Sacro Cuore
Author-Workplace-Name: Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore


Author-Name: Gabriele Iannotta
Author-X-Name-First: Gabriele
Author-X-Name-Last: Iannotta



Title: Behavioural credit cycles.


Abstract: We explore the intertwined dynamics of asset prices and the macroeconomy in a Behavioural model of Credit Cycles (BCC) characterized
by a credit friction a' la Kiyotaki and Moore and heterogeneous expectations cum heuristic switching a la Brock and Hommes. This
behavioural approach allows to better understand and replicate the
effects of shocks.
In the absence of actual defaults, following a positive productivity
shock, our behavioural model (BCC Mark I) generates hump-shaped
impulse-response functions that are more realistic than those generated by the same shock in a corresponding model with rational expec-
tations (RCC).
When the behavioural model allows also for defaults (BCC Mark II), a productivity shock triggers ample and persistent 
uctuations (if the intensity of choice of the lender is suciently high), a feature that is absent in BCC Mark I (and of course in RCC). 
Length: 67
Creation-Date: 2022-09
File-URL: http://dipartimenti.unicatt.it/economia-finanza-def119.pdf
File-Format: Application/pdf
File-Function: First version, 2022
Number: def119
Classification-JEL: E32, E44, D84. 
Keywords: Credit Market, Collateral Constraints, Heterogeneous Expectations, Bankruptcy, Boom Bust Cycles.
Handle: RePEc:ctc:serie1:def119