Business fluctuations in a credit-network economy
AbstractWe model a network economy with three sectors: downstream firms, upstream firms, and banks. Agents are linked by productive and credit relationships so that the behavior of one agent influences the behavior of the others through network connections. Credit interlinkages among agents are a source of bankruptcy diffusion: in fact, failure of fulfilling debt commitments would lead to bankruptcy chains. All in all, the bankruptcy in one sector can diffuse to other sectors through linkages creating a vicious cycle and bankruptcy avalanches in the network economy. Our analysis show how the choices of credit supply by both banks and firms are interrelated. While the initial impact of monetary policy is on bank behaviour, we show the interactive play between the choices made by banks, the choices made by firms in their role as providers of credit, and the choices made by firms in their role as producers.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1006.3521.
Date of creation: Jun 2010
Date of revision:
Publication status: Published in Physica A: Statistical Mechanics and its Applications, Vol: 370, Issue: 1, 1 October 2006, pp: 68-74
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Web page: http://arxiv.org/
Other versions of this item:
- Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Russo, Alberto & Stiglitz, Joseph E., 2006. "Business fluctuations in a credit-network economy," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 370(1), pages 68-74.
- NEP-ALL-2010-06-26 (All new papers)
- NEP-BAN-2010-06-26 (Banking)
- NEP-CBA-2010-06-26 (Central Banking)
- NEP-NET-2010-06-26 (Network Economics)
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