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The financial accelerator in an evolving credit network

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Author Info

  • Delli Gatti, Domenico
  • Gallegati, Mauro
  • Greenwald, Bruce
  • Russo, Alberto
  • Stiglitz, Joseph E.

Abstract

We model a credit network characterized by credit relationships connecting (i) downstream (D) and upstream (U) firms and (ii) firms and banks. The net worth of D firms is the driver of fluctuations. The production of D firms and of their suppliers (U firms) in fact, is constrained by the availability of internal finance--proxied by net worth--to the D firms. The structure of credit interlinkages changes over time due to an endogeneous process of partner selection, which leads to the polarization of the network. At the aggregate level, the distribution of growth rates exhibits negative skewness and excess kurtosis. When a shock hits the macroeconomy or a significant group of agents in the credit network a bankruptcy avalanche can follow if agents' leverage is critically high. In a nutshell we want to explore the properties of a network-based financial accelerator.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 34 (2010)
Issue (Month): 9 (September)
Pages: 1627-1650

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Handle: RePEc:eee:dyncon:v:34:y:2010:i:9:p:1627-1650

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Business fluctuations Financial instability Bankruptcy chains;

References

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Citations

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Cited by:
  1. Luca RICCETTI & Alberto RUSSO & Mauro GALLEGATI, 2011. "Leveraged Network-Based Financial Accelerator," Working Papers 371, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  2. Riccetti, Luca & Russo, Alberto & Gallegati, Mauro, 2012. "An Agent Based Decentralized Matching Macroeconomic Model," MPRA Paper 42211, University Library of Munich, Germany.
  3. Giovanni Dosi & Giorgio Fagiolo & Mauro Napoletano & Andrea Roventini, 2012. "Income Distribution, Credit and Fiscal Policies in an Agent-Based Keynesian Model," Documents de Travail de l'OFCE 2012-06, Observatoire Francais des Conjonctures Economiques (OFCE).
  4. repec:ept:journl:v:xxviii:y:2011:i:307en:p:271-273 is not listed on IDEAS
  5. Giorgio Fagiolo & Andrea Roventini, 2012. "Macroeconomic Policy in DSGE and Agent-Based Models," EconomiX Working Papers 2012-17, University of Paris West - Nanterre la Défense, EconomiX.
  6. Russo, Alberto & Zanini, Adelino, 2010. "On the expansion of finance and financialisation," MPRA Paper 26828, University Library of Munich, Germany.
  7. Antoine Godin & Stephen Kinsella, 2012. "Leverage, liquidity and crisis: A simulation study," ASSRU Discussion Papers 1205, ASSRU - Algorithmic Social Science Research Unit.
  8. Hale, Galina, 2012. "Bank relationships, business cycles, and financial crises," Journal of International Economics, Elsevier, vol. 88(2), pages 312-325.
  9. Russo, Alberto, 2012. "Elements of novelty, known mechanisms, and the fundamental causes of the recent crisis," MPRA Paper 41088, University Library of Munich, Germany.
  10. Stefania Vitali & Stefano Battiston & Mauro Gallegati, . "Financial fragility and distress propagation in a network of regions," Working Papers ETH-RC-12-016, ETH Zurich, Chair of Systems Design.
  11. Joseph E Stiglitz & Mauro Gallegati, 2011. "Heterogeneous Interacting Agent Models for Understanding Monetary Economies," Eastern Economic Journal, Palgrave Macmillan, vol. 37(1), pages 6-12.

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