The Good, the Bad and the Missed Boom

Tinbergen Institute Discussion Paper 2019-060/IV

53 Pages Posted: 22 Aug 2019 Last revised: 26 May 2020

See all articles by Enrico C. Perotti

Enrico C. Perotti

University of Amsterdam - Finance Group; Centre for Economic Policy Research (CEPR); Tinbergen Institute

Magdalena Rola-janicka

Tilburg University

Date Written: June 28, 2019


Some credit booms result in financial crises. While excessive risk-taking is a plausible cause, many investors do not anticipate increasing risk. We show how credit supply driven booms may be misunderstood as productivity driven, due to opaque bank balance sheets which disguise risk incentives. Funding shocks may sustain prudent lending (good boom), induce high risk exposure and boost asset prices (bad boom), or lead to underlending (missed boom). Rational agents drawing inference from prices amplify the effect of excess or scarce funding. Public information on total credit improves inference, but cannot avoid confusion when bank opacity is high.

Suggested Citation

Perotti, Enrico C. and Rola-janicka, Magdalena, The Good, the Bad and the Missed Boom (June 28, 2019). Tinbergen Institute Discussion Paper 2019-060/IV, Available at SSRN: or

Enrico C. Perotti (Contact Author)

University of Amsterdam - Finance Group ( email )

Plantage Muidergracht 12
Amsterdam, 1018 TV
+31 20 525 4159 (Phone)
+31 20 525 5285 (Fax)


Centre for Economic Policy Research (CEPR)

United Kingdom

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS

Magdalena Rola-janicka

Tilburg University ( email )

P.O. Box 90153
Tilburg, Noord-Brabant 5000 LE

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