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Straub, Ludwig and Ulbricht, Robert
(2015)
Endogenous Uncertainty and Credit Crunches.
TSE Working Paper, n. 15-604, Toulouse
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Abstract
We develop a theory of endogenous uncertainty where the ability of investors to learn about firm-level fundamentals declines during financial crises. At the same time, higher uncertainty reinforces financial distress, causing a persistent cycle of uncertainty, pessimistic expectations, and financial constraints. Through this channel, a temporary shortage of funds can develop into a long-lasting funding problem for firms. Financial crises are characterized by increased credit misallocation, volatile asset prices, high risk premia, an increased cross-sectional dispersion of returns, and high levels of disagreement among forecasters. A numerical example suggests that the proposed channel may significantly delay recovery from financial shocks.
| Item Type: | Monograph (Working Paper) |
|---|---|
| Language: | English |
| Date: | 1 October 2015 |
| Place of Publication: | Toulouse |
| Uncontrolled Keywords: | Belief traps, credit crunches, dispersed information, endogenous uncertainty, internal persistence of financial shocks, resource misallocation |
| JEL Classification: | D83 - Search; Learning; Information and Knowledge; Communication; Belief E32 - Business Fluctuations; Cycles E44 - Financial Markets and the Macroeconomy |
| Subjects: | B- ECONOMIE ET FINANCE |
| Divisions: | TSE-R (Toulouse) |
| Institution: | Université Toulouse 1 Capitole |
| Site: | UT1 |
| Date Deposited: | 05 Nov 2015 15:10 |
| Last Modified: | 27 Oct 2021 13:36 |
| OAI Identifier: | oai:tse-fr.eu:29800 |
| URI: | https://publications.ut-capitole.fr/id/eprint/18587 |
