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From interaction to business fluctuations: How credit network explain cycles

Author

Listed:
  • Emanuele Ciola

    (Department of Economics, Universitat Jaume I, Castellón, Spain and Department of Economics and Social Sciences, Università Politecnica delle Marche, Ancona-Italy)

  • Gabriele Tedeschi

    (Department of Economics, Universitat Jaume I, Castellón, Spain)

Abstract

In this paper, we develop a macroeconomic model with heterogeneous interacting agents to study the effects of different configurations of the interbank network on the overall performance of the economy. Specifically, we implement a simple decentralized matching model in which deposit, credit and interbank relations evolve endogenously via a fitness measure. Our findings confirm the importance of the interbank market as an indisputable source of economic stability able to counterbalance deposit withdrawal and stabilize the credit allocation. However, when highly centralized, this market can amplify the effects of shocks in the economy due to coordination failures of core banks.

Suggested Citation

  • Emanuele Ciola & Gabriele Tedeschi, 2021. "From interaction to business fluctuations: How credit network explain cycles," Working Papers 2021/01, Economics Department, Universitat Jaume I, Castellón (Spain).
    • Handle: RePEc:jau:wpaper:2021/01
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    References listed on IDEAS

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    More about this item

    Keywords

    Interbank network; Business Fluctuations; Financial crises;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G01 - Financial Economics - - General - - - Financial Crises

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