02000cas a2200241 a 4500 AALejournalIMF009526 230101c9999 xx r poo 0 0eng d 5.00 USD 9781451867879 1018-5941 BD-DhAAL BD-DhAAL Boz, Emine. Can Miracles Lead to Crises? : The Role of Optimism in Emerging Markets Crises / Emine Boz. Washington, D.C. : International Monetary Fund, 2007. 1 online resource (34 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Emerging market financial crises are abrupt and dramatic, usually occurring after a period of high output growth, massive capital flows, and a boom in asset markets. This paper develops an equilibrium asset-pricing model with informational frictions in which vulnerability and the crisis itself are consequences of the investor optimism in the period preceding the crisis. The model features two sets of investors, domestic and foreign. Both sets of investors learn from noisy signals, which contain information relevant for asset returns and formulate expectations, or "beliefs," about the state of productivity. We show that, if preceded by a sequence of positive signals, a small, negative noise shock can trigger a sharp downward adjustment in investors' beliefs, asset prices, and consumption. The magnitude of this downward adjustment and sensitivity to negative signals increase with the level of optimism attained prior to the negative signal. Mode of access: Internet IMF Working Papers; Working Paper ; No. 2007/223 Full text available on IMF http://elibrary.imf.org/view/journals/001/2007/223/001.2007.issue-223-en.xml IMF e-Library