Financial crisis and slow recovery with Bayesian learning agents

Arbeitspapier

In a simple continuous-time model where the learning process affects the willingness to hold liquidity, we provide an intuitive explanation of business cycle asymmetry and post-crisis slow recovery. When observing a liquidity shock, individuals rationally increase their subjective probability of re-encountering it. It leads to an upward jump in liquidity preference and a discrete fall in consumption. Conversely, as a period without shocks continues, they gradually decrease the subjective probability, reduce liquidity preference, and increase consumption. The recovery process is particularly slow after many shocks are observed within a short period because people do not easily change their pessimistic view.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ISER Discussion Paper ; No. 1085

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Demand for Money ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
• Subject: Bayesian Updating ; Liquidity Preference ; Markov Switching ; Asymmetric Cycles ; Persistence

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Horii, Ryo ; Ono, Yoshiyasu
• Event: Veröffentlichung
• (who): Osaka University, Institute of Social and Economic Research (ISER)
• (where): Osaka
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/230490
• Last update: 10.03.2025, 11:42 AM CET