Download This PaperInformation Dynamics and Macroeconomic Fluctuations
35 Pages Posted: 12 May 2020 Last revised: 26 May 2022
Date Written: March 22, 2020
Abstract
The amount of information produced about firms’ productivities and about
the quality of collateral backing their loans varies over time. These information
dynamics determine the evolution of credit, output and productivity, which feeds
back into incentives to produce information. We characterize this intricate dynamic
relation. A credit boom happens when information about collateral depreciates. A
financial crisis happens when information about collateral is suddenly generated.
Information about firms’ individual productivities over credit booms can prevent or
tame the crisis, acting as an endogenous macroprudential force.
Keywords: Business Cycles, Financial Markets and the Macro-economy, Financial Crises
JEL Classification: E3, E32, E44, G01
Suggested Citation: Suggested Citation
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