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Credit cycles: Experimental evidence

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  • Massenot, Baptiste

Abstract

Credit boom-busts are observed in experimental credit markets with perfect information, no aggregate shocks, and no speculative motive. By contrast, a stable outcome is observed in the island economy, which isolates the borrowers but is otherwise similar to the market economy. The higher willingness to pay for credit following higher market but not island interest rates is consistent with herding, which can create spiraling effects and predict a credit boom-bust.

Suggested Citation

  • Massenot, Baptiste, 2020. "Credit cycles: Experimental evidence," SAFE Working Paper Series 104 [rev.], Leibniz Institute for Financial Research SAFE, revised 2020.
    • Handle: RePEc:zbw:safewp:104r
    DOI: 10.2139/ssrn.2607869
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    References listed on IDEAS

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