Breaking the spell with credit-easing : self-confirming credit crises in competitive search economies
Gaballo, Gaetano
Marimon, Ramon

Data: 2016
Resum: We show that credit crises can be Self-Confirming Equilibria (SCE), which provides a new rationale for policy interventions like, for example, the FRB's TALF credit-easing program in 2009. We introduce SCE in competitive credit markets with directed search. These markets are efficient when lenders have correct beliefs about borrowers' reactions to their offers. Nevertheless, credit crises - where high interest rates self-confirm high credit risk - can arise when lenders have correct beliefs only locally around equilibrium outcomes. Policy is needed because competition deters the socially optimal degree of information acquisition via individual experiments at low interest rates. A policy maker with the same beliefs as lenders will find it optimal to implement a targeted subsidy to induce low interest rates and, as a by-product, generate new information for the market. We provide evidence that the 2009 TALF was an example of such Credit Easing policy. We collect new micro-data on the ABS auto loans in the US before and after the policy intervention, and we test, successfully, our theory in this case.
Ajuts: European Commission 649396
Drets: Aquest document està subjecte a una llicència d'ús Creative Commons. Es permet la reproducció total o parcial, la distribució, la comunicació pública de l'obra i la creació d'obres derivades, fins i tot amb finalitats comercials, sempre i quan es reconegui l'autoria de l'obra original. Creative Commons
Llengua: Anglès
Col·lecció: Barcelona Graduate School of Economics. ADEMU working paper series
Col·lecció: Ademus Working Paper Series ; 1
Document: Working paper
Matèria: Unconventional policies ; Learning ; Credit crisis ; Social experimentation ; Self-confirming ; Equilibrium ; Directed search

Adreça alternativa: https://hdl.handle.net/10230/26001


49 p, 1.1 MB

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Documents de recerca > Working papers

 Registre creat el 2018-10-23, darrera modificació el 2022-07-09



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