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Lending Sociodynamics and Drivers of the Financial Business Cycle

1 Economics Department, University of California Berkeley, Berkeley, CA 94720, USA
2 College of Optical Sciences, University of Arizona, Tucson, AZ 85721, USA

We extend sociodynamic modeling of the financial business cycle to the Euro Area andJapan. Using an opinion-formation model and machine learning techniques we find stable modelestimation of the financial business cycle using central bank lending surveys and a few selectedmacroeconomic variables. We find that banks have asymmetric response to good and bad economicinformation, and that banks adapt to their peers’ opinions when changing lending policies.
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Keywords economic instability; Financial Instability hypothesis; Sociodynamics; opinion formation; systemic risk; Random Forest; Fokker-Planck equation

Citation: Raymond J. Hawkins, Hengyu Kuang. Lending Sociodynamics and Drivers of the Financial Business Cycle. Quantitative Finance and Economics, 2017, 1(3): 219-252. doi: 10.3934/QFE.2017.3.219

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