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Learning in a Credit Economy

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  • Tiziana Assenzay
  • Michele Berardi

Abstract

In this work we analyze a credit economy à la Kiyotaki and Moore (JPE, 1997) enriched with learning dynamics. Both borrowers and lenders need to make expectations about the future price of the collateral, and under heterogeneous learning this can have interesting consequences for the economy when the possibility of bankruptcy is taken into consideration.

Suggested Citation

  • Tiziana Assenzay & Michele Berardi, 2008. "Learning in a Credit Economy," Centre for Growth and Business Cycle Research Discussion Paper Series 100, Economics, The Univeristy of Manchester.
  • Handle: RePEc:man:cgbcrp:100
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    File URL: http://hummedia.manchester.ac.uk/schools/soss/cgbcr/discussionpapers/dpcgbcr100.pdf
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    References listed on IDEAS

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    1. Seppo Honkapohja & Kaushik Mitra, 2006. "Learning Stability in Economies with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 284-309, April.
    2. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
    3. Oliver Hart & John Moore, 1999. "Foundations of Incomplete Contracts," Review of Economic Studies, Oxford University Press, vol. 66(1), pages 115-138.
    4. Bruce C. Greenwald & Joseph E. Stiglitz, 1993. "Financial Market Imperfections and Business Cycles," The Quarterly Journal of Economics, Oxford University Press, vol. 108(1), pages 77-114.
    5. Wieland, Volker, 2000. "Monetary policy, parameter uncertainty and optimal learning," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 199-228, August.
    6. George W. Evans & Seppo Honkapohja, 2006. "Monetary Policy, Expectations and Commitment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 108(1), pages 15-38, March.
    7. George W. Evans & Seppo Honkapohja, 2003. "Expectations and the Stability Problem for Optimal Monetary Policies," Review of Economic Studies, Oxford University Press, vol. 70(4), pages 807-824.
    8. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-248, April.
    9. Branch, William A. & Evans, George W., 2006. "Intrinsic heterogeneity in expectation formation," Journal of Economic Theory, Elsevier, vol. 127(1), pages 264-295, March.
    10. Berardi, Michele, 2007. "Heterogeneity and misspecifications in learning," Journal of Economic Dynamics and Control, Elsevier, vol. 31(10), pages 3203-3227, October.
    11. Stiglitz,Joseph & Greenwald,Bruce, 2003. "Towards a New Paradigm in Monetary Economics," Cambridge Books, Cambridge University Press, number 9780521810340, October.
    12. Ben Bernanke & Mark Gertler, 1990. "Financial Fragility and Economic Performance," The Quarterly Journal of Economics, Oxford University Press, vol. 105(1), pages 87-114.
    13. Branch, William A. & McGough, Bruce, 2009. "A New Keynesian model with heterogeneous expectations," Journal of Economic Dynamics and Control, Elsevier, vol. 33(5), pages 1036-1051, May.
    14. LeBaron, Blake, 2006. "Agent-based Computational Finance," Handbook of Computational Economics,in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 24, pages 1187-1233 Elsevier.
    15. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
    16. Oliver Hart & John Moore, 1994. "A Theory of Debt Based on the Inalienability of Human Capital," The Quarterly Journal of Economics, Oxford University Press, vol. 109(4), pages 841-879.
    17. Hommes, Cars H., 2006. "Heterogeneous Agent Models in Economics and Finance," Handbook of Computational Economics,in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 23, pages 1109-1186 Elsevier.
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    Citations

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    Cited by:

    1. Pei Kuang, 2013. "Imperfect Knowledge about Asset Prices and Credit Cycles," Discussion Papers 13-02, Department of Economics, University of Birmingham.
    2. repec:spr:joecth:v:64:y:2017:i:1:d:10.1007_s00199-016-0980-5 is not listed on IDEAS
    3. Hommes, Cars, 2011. "The heterogeneous expectations hypothesis: Some evidence from the lab," Journal of Economic Dynamics and Control, Elsevier, vol. 35(1), pages 1-24, January.
    4. Nakagawa, Ryuichi, 2015. "Learnability of an equilibrium with private information," Journal of Economic Dynamics and Control, Elsevier, vol. 59(C), pages 58-74.
    5. repec:ctc:serie1:def7 is not listed on IDEAS
    6. Kuang, Pei, 2016. "A Note On Learning In A Credit Economy," Macroeconomic Dynamics, Cambridge University Press, vol. 20(03), pages 845-855, April.
    7. Ludwig, Alexander & Zimper, Alexander, 2014. "Biased Bayesian learning with an application to the risk-free rate puzzle," Journal of Economic Dynamics and Control, Elsevier, vol. 39(C), pages 79-97.
    8. Tiziana Assenza & William A. Brock & Cars H. Hommes, 2017. "Animal Spirits, Heterogeneous Expectations, And The Amplification And Duration Of Crises," Economic Inquiry, Western Economic Association International, vol. 55(1), pages 542-564, January.
    9. Sergio Santoro, 2011. "Heterogeneity and learning with complete markets," Temi di discussione (Economic working papers) 806, Bank of Italy, Economic Research and International Relations Area.
    10. Pei Kuang, 2012. "Comment on Assenza and Berardi "Learning in a Credit Economy" (2009, JEDC)," Discussion Papers 13-06, Department of Economics, University of Birmingham.
    11. Tiziana Assenza & William A. Brock & Cars H. Hommes, 2013. "Animal Spirits, Heterogeneous Expectations and the Emergence of Booms and Busts," Tinbergen Institute Discussion Papers 13-205/II, Tinbergen Institute.
    12. Pei Kuang, 2013. "Imperfect Knowledge about Asset Prices and Credit Cycles," CDMA Working Paper Series 201303, Centre for Dynamic Macroeconomic Analysis.
    13. Xiao, Wei, 2013. "Learning about monetary policy rules when the housing market matters," Journal of Economic Dynamics and Control, Elsevier, vol. 37(3), pages 500-515.

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