Credit market dynamics: a cobweb model

Abstract

Credit market, Price fluctuations, Market interactions, Interest rate dynamics, Nonlinear dynamics, C02, C6, E4,

Italian mortgage markets and their dynamics

“…Therefore, updating the data reported in Casellina et al (2011) and Uberti et al (2013) to the third quarter of 2012 (Figure 1), it turns out that the spread Δρ t = ρ X,t − ρ Z,t between the average fixed rate ρ X,t and the adjustable one ρ Z,t was inversely related to interest rate EURIBOR ι t : this correlation was −0.7882. It also emerges that, over time, a mechanism of switching was put in action among customer preferences between FRMs and ARMs.…”

“…Recently, a meaningful dataset had been arranged by the Bank of Italy on volumes and average interest rates for FRM and ARM on the Italian mortgage market from 1997 : q1 to 2011 : q4. Together with a brief discussion of the phases of the observed dynamics, Uberti et al (2013) showed how the original model Casellina et al (2011) for interdependent markets fitted to data at a good level and, moreover, they pointed out the capability of model to capture the switching mechanism between FRM and ARM markets, that remains significative also in presence of breaks.…”

“…In Casellina et al (2011) and Uberti et al (2013) some of the dynamics of the Italian markets of FRMs and ARMs are analysed: the switching mechanism between these two markets is pointed out by historical data on the universe of mortgages in Italy since 1999 (the year of entry into force of EURIBOR rates) to 2011 and an original model is proposed to grasp these peculiar interconnection behaviours. One of the fundamental assumptions of these studies is that the interest rates for mortgages are also indexed to the EURIBOR rate, among other factors.…”

“…The time series of Italian mortgage markets (see Figure 1; source Bank of Italy) used by Casellina et al (2011) and Uberti et al (2013) have become attractive not only, as stressed above, to look back at some phases of the recent past, but also for further aspects: (i) the interconnection between the two markets has become more evident by evaluating the series of the k-th market values V k,t = ρ k,t N k,t , where the average rate ρ k,t of the k-th type of market is defined as a price and the absolute number of contracts N k,t evaluates the demanded and, at the same time, the supplied quantities for the k-th type of contract, (ii) the volatility of market values and, finally, (iii) the effect that could induce a shock to the reference rate for mortgages, the EURIBOR rate ι t .…”

“…In order to study the dynamics of market shares, according to cobweb phenomenology, a mathematical model is developed in Casellina et al (2011) and applied because it turned out able to easily see the switching mechanisms observed between FRMs and ARMs markets. Then, from this initial mathematical model, an econometric model is derived and estimated in Uberti et al (2013).…”