The Fiscal Cost of Financial Instability
AbstractThis paper presents an agent based model that investigates the possible outcomes of different fiscal and regulatory policies in a financially fragile economy. We analyse the consequences of the attempt by the government to counteract a downturn when it ignores the debt dynamics as modelled by Fisher and Minsky. In particular, we formulate an educated guess about the burden that the government and the taxpayer must bear when a bubble bursts, and its relationship with the extent of government intervention and the taxation system. We also evaluate the outcomes of possible alternatives or complementary regulatory policies. We model four different scenarios treating separately a tax on profits and a tax on private wealth and, for both of them, we specify two cases depending on whether the financial system is able to autonomously generate liquidity. Therefore, we can assess the effect of endogenous money and endogenous credit on the different stabilization policies.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by De Gruyter in its journal Studies in Nonlinear Dynamics & Econometrics.
Volume (Year): 16 (2012)
Issue (Month): 4 (October)
Contact details of provider:
Web page: http://www.degruyter.com
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Oren Sussman & Javier Suarez, 2004.
"Financial Distress, Bankruptcy Law and the Business Cycle,"
OFRC Working Papers Series
2004fe07, Oxford Financial Research Centre.
- Javier Suarez & Oren Sussman, 2007. "Financial distress, bankruptcy law and the business cycle," Annals of Finance, Springer, vol. 3(1), pages 5-35, January.
- Oren Sussman & Javier Suarez, 2004. "Financial Distress, Bankruptcy Law and the Business Cycle," Economics Series Working Papers 2004-FE-07, University of Oxford, Department of Economics.
- Lux, Thomas, 1995. "Herd Behaviour, Bubbles and Crashes," Economic Journal, Royal Economic Society, vol. 105(431), pages 881-96, July.
- Asada, Toichiro & Chiarella, Carl & Flaschel, Peter & Mouakil, Tarik & Proaño, Christian R., 2009.
"Stabilizing an unstable economy: on the choice of proper policy measures,"
Economics Discussion Papers
2009-50, Kiel Institute for the World Economy.
- Asada, Toichiro & Chiarella, Carl & Flaschel, Peter & Mouakil, Tarik & Proaño, Christian R., 2010. "Stabilizing an unstable economy: On the choice of proper policy measures," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 4(21), pages 1-43.
- Urban Jermann & Vincenzo Quadrini, 2012.
"Macroeconomic Effects of Financial Shocks,"
American Economic Review,
American Economic Association, vol. 102(1), pages 238-71, February.
- Urban Jermann & Vincenzo Quadrini, 2009. "Macroeconomic Effects of Financial Shocks," NBER Working Papers 15338, National Bureau of Economic Research, Inc.
- Jermann, Urban & Quadrini, Vincenzo, 2009. "Macroeconomic Effects of Financial Shocks," CEPR Discussion Papers 7451, C.E.P.R. Discussion Papers.
- Francisco Covas & Wouter J. Den Haan, 2011. "The Cyclical Behavior of Debt and Equity Finance," American Economic Review, American Economic Association, vol. 101(2), pages 877-99, April.
- Chiarella, Carl & Di Guilmi, Corrado, 2011.
"The financial instability hypothesis: A stochastic microfoundation framework,"
Journal of Economic Dynamics and Control,
Elsevier, vol. 35(8), pages 1151-1171, August.
- Carl Chiarella & Corrado Di Guilmi, 2010. "The Financial Instability Hypothesis:a Stochastic Microfoundation Framework," Research Paper Series 273, Quantitative Finance Research Centre, University of Technology, Sydney.
- Nobuhiro Kiyotaki & John Moore, 1995.
NBER Working Papers
5083, National Bureau of Economic Research, Inc.
- Tobin, James, 1969. "A General Equilibrium Approach to Monetary Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 1(1), pages 15-29, February.
- Eric Nasica & Alain Raybaut, 2005.
"Profits, Confidence and public deficits: modeling Minsky's institutional dynamics,"
- Eric Nasica & Alain Raybaut, 2005. "Profits, confidence, and public deficits: modeling Minsky's institutional dynamics," Journal of Post Keynesian Economics, M.E. Sharpe, Inc., vol. 28(1), pages 136-154, November.
- Foley, Duncan K, 1975. "On Two Specifications of Asset Equilibrium in Macroeconomic Models," Journal of Political Economy, University of Chicago Press, vol. 83(2), pages 303-24, April.
- Stephen J. Turnovsky, 2000. "Methods of Macroeconomic Dynamics, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262201232, January.
- Carl Chiarella & Roberto Dieci & Xue-Zhong He, 2008. "Heterogeneity, Market Mechanisms, and Asset Price Dynamics," Research Paper Series 231, Quantitative Finance Research Centre, University of Technology, Sydney.
- Carl Chiarella & Corrado Di Guilmi, 2013.
"Monetary Policy and Debt Deflation: Some Computational Experiments,"
CAMA Working Papers
2013-42, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Carl Chiarella & Corrado Di Guilmi, 2013. "Monetary Policy and Debt Deflation: Some Computational Experiments," Working Paper Series 10, Economics Discipline Group, UTS Business School, University of Technology, Sydney.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Golla).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.