TY  - JOUR
AU  - Chari,V. V.
AU  - Kehoe,Patrick J.
TI  - Financial Crises as Herds: Overturning the Critiques
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9658
PY  - 2003
Y2  - April 2003
UR  - http://www.nber.org/papers/w9658
L1  - http://www.nber.org/papers/w9658.pdf
N1  - Author contact info:
Varadarajan V. Chari
Department of Economics
University of Minnesota
1035 Heller Hall
271 - 19th Avenue South
Minneapolis, MN 55455
Tel: 612/626-5171
Fax: (612) 624-0209
E-Mail: varadarajanvchari@gmail.com

Patrick Kehoe
Research Department
Federal Reserve Bank of Minneapolis
90 Hennepin Avenue
Minneapolis, MN  55480-0291
Tel: 612/204-5525
Fax: 612/204-5515
E-Mail: pkehoe@res.mpls.frb.fed.us
AB  - Financial crises are widely argued to be due to herd behavior. Yet recently developed models of herd behavior have been subjected to two critiques which seem to make them inapplicable to financial crises. Herds disappear from these models if two of their unappealing assumptions are modified: if their zero-one investment decisions are made continuous and if their investors are allowed to trade assets with market-determined prices. However, both critiques are overturned---herds reappear in these models---once another of their unappealing assumptions is modified: if, instead of moving in a prespecified order, investors can move whenever they choose.
ER  -