Loan Supply and Asset Price Volatility: An Experimental Study

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Volatility: An Experimental Study</title> <meta name="description" content="Loan Supply and Asset Price Volatility: An Experimental Study"> <meta name="keywords" content="Behavioural Macroeconomics,Credit Cycle,Experimental Economics,Heterogeneous Expectations,Learning-to-Forecast Experiment"> <meta name="viewport" content="width=device-width, initial-scale=1, minimum-scale=1, maximum-scale=1, user-scalable=no"> <meta charset="utf-8"> <link href="https://cdn.waset.org/favicon.ico" type="image/x-icon" rel="shortcut icon"> <link href="https://cdn.waset.org/static/plugins/bootstrap-4.2.1/css/bootstrap.min.css" rel="stylesheet"> <link href="https://cdn.waset.org/static/plugins/fontawesome/css/all.min.css" rel="stylesheet"> <link href="https://cdn.waset.org/static/css/site.css?v=150220211555" rel="stylesheet"> </head> <body> <header> <div class="container"> <nav class="navbar navbar-expand-lg navbar-light"> <a class="navbar-brand" href="https://waset.org"> <img 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publication-listing mt-3 mb-3"> <h5 class="card-header" style="font-size:.9rem">Loan Supply and Asset Price Volatility: An Experimental Study</h5> <div class="card-body"> <p class="card-text"><strong>Authors:</strong> <a href="https://publications.waset.org/abstracts/search?q=Gabriele%20Iannotta">Gabriele Iannotta</a> </p> <p class="card-text"><strong>Abstract:</strong></p> This paper investigates credit cycles by means of an experiment based on a Kiyotaki & Moore (1997) model with heterogeneous expectations. The aim is to examine how a credit squeeze caused by high lender-level risk perceptions affects the real prices of a collateralised asset, with a special focus on the macroeconomic implications of rising price volatility in terms of total welfare and the number of bankruptcies that occur. To do that, a learning-to-forecast experiment (LtFE) has been run where participants are asked to predict the future price of land and then rewarded based on the accuracy of their forecasts. The setting includes one lender and five borrowers in each of the twelve sessions split between six control groups (G1) and six treatment groups (G2). The only difference is that while in G1 the lender always satisfies borrowers’ loan demand (bankruptcies permitting), in G2 he/she closes the entire credit market in case three or more bankruptcies occur in the previous round. Experimental results show that negative risk-driven supply shocks amplify the volatility of collateral prices. This uncertainty worsens the agents’ ability to predict the future value of land and, as a consequence, the number of defaults increases and the total welfare deteriorates. <iframe src="https://publications.waset.org/abstracts/142210.pdf" style="width:100%; height:400px;" frameborder="0"></iframe> <p class="card-text"><strong>Keywords:</strong> <a href="https://publications.waset.org/abstracts/search?q=Behavioural%20Macroeconomics" title="Behavioural Macroeconomics">Behavioural Macroeconomics</a>, <a href="https://publications.waset.org/abstracts/search?q=Credit%20Cycle" title="Credit Cycle">Credit Cycle</a>, <a href="https://publications.waset.org/abstracts/search?q=Experimental%20Economics" title="Experimental Economics">Experimental Economics</a>, <a href="https://publications.waset.org/abstracts/search?q=Heterogeneous%20Expectations" title="Heterogeneous Expectations">Heterogeneous Expectations</a>, <a href="https://publications.waset.org/abstracts/search?q=Learning-to-Forecast%20Experiment" title="Learning-to-Forecast Experiment">Learning-to-Forecast Experiment</a> </p> <a href="https://publications.waset.org/abstracts/142210/loan-supply-and-asset-price-volatility-an-experimental-study" class="btn btn-primary btn-sm">Procedia</a> <a href="https://publications.waset.org/abstracts/142210.pdf" target="_blank" class="btn btn-primary btn-sm">PDF</a> <span class="bg-info text-light px-1 py-1 float-right rounded"> Downloads <span class="badge badge-light">125</span> </span> </div> </div> </div> </main> <footer> <div id="infolinks" class="pt-3 pb-2"> <div class="container"> <div style="background-color:#f5f5f5;" class="p-3"> <div class="row"> <div class="col-md-2"> <ul class="list-unstyled"> About <li><a href="https://waset.org/page/support">About Us</a></li> <li><a href="https://waset.org/page/support#legal-information">Legal</a></li> <li><a target="_blank" rel="nofollow" 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Loan Supply and Asset Price Volatility: An Experimental Study