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Financial Fragility and Macroeconomic Instability in a Heterogeneous Interacting Agents Framework

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  • Russo, Alberto

Abstract

A financial crisis can have important effects on the real economy. The more financially fragile are agents the more likely is the occurrence of a financial crisis. Moreover, financial contagion may have more or less severe consequences on the real economy, depending on the degree distribution of credit interlinkagess. However, financial instability may be due to real causes. For instance, the deregulation of markets may create the conditions for an increase of inequality. If rich people save a larger part of their income, while the poor are forced to reduce consumption, a lack of aggregate demand may follow, which can eventually lead to a large crisis.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 46578.

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Date of creation: Mar 2013
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Handle: RePEc:pra:mprapa:46578

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Keywords: financial instability; inequality; crisis;

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  1. Bruce C. Greenwald & Joseph E. Stiglitz, 1988. "Financial Market Imperfections and Business Cycles," NBER Working Papers 2494, National Bureau of Economic Research, Inc.
  2. Flannery, Mark J. & Rangan, Kasturi P., 2006. "Partial adjustment toward target capital structures," Journal of Financial Economics, Elsevier, vol. 79(3), pages 469-506, March.
  3. de Cecco, Marcello, 1990. "Keynes revived : A review essay," Journal of Monetary Economics, Elsevier, vol. 26(1), pages 179-190, August.
  4. Russo, Alberto, 2012. "Elements of novelty, known mechanisms, and the fundamental causes of the recent crisis," MPRA Paper 41088, University Library of Munich, Germany.
  5. Kalemli-Ozcan, Sebnem & Sørensen, Bent E & Yesiltas, Sevcan, 2011. "Leverage Across Firms, Banks and Countries," CEPR Discussion Papers 8549, C.E.P.R. Discussion Papers.
  6. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  7. Engelbert Stockhammer, 2004. "Financialisation and the slowdown of accumulation," Cambridge Journal of Economics, Oxford University Press, vol. 28(5), pages 719-741, September.
  8. Thomas I. Palley, 2009. "The Limits of Minsky’s Financial Instability Hypothesis as an Explanation of the Crisis," IMK Working Paper 11-2009, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
  9. Riccetti, Luca & Russo, Alberto & Gallegati, Mauro, 2013. "Leveraged network-based financial accelerator," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1626-1640.
  10. Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Russo, Alberto & Stiglitz, Joseph E., 2010. "The financial accelerator in an evolving credit network," Journal of Economic Dynamics and Control, Elsevier, vol. 34(9), pages 1627-1650, September.
  11. Riccetti, Luca & Russo, Alberto & Gallegati, Mauro, 2012. "An Agent Based Decentralized Matching Macroeconomic Model," MPRA Paper 42211, University Library of Munich, Germany.
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