The Cobweb, Borrowing and Financial Crises
AbstractStudies of non-linear cobweb models have failed to address a fundamental issue: whether the complex dynamical behavior displayed by such models is consistent with the survival of producers. This paper shows that where borrowing is unconstrained, as is implicitly assumed in standard cobweb models, borrowing results in financial crises. Incorporating constraints on borrowing is needed to salvage cobweb models. Industry performance (in terms both of profitability and of the incidence of bankruptcies) is highly sensitive to the nature of such credit restrictions.
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Bibliographic InfoPaper provided by Economics, The University of Manchester in its series The School of Economics Discussion Paper Series with number 0503.
Date of creation: 2005
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