Real and financial crises
AbstractPrevious analyses of macroeconomic imbalances have employed models that either focus exclusively on real-side effects or financial-side disturbances. Real-side models usually make the highly unrealistic assumption that financial surplus firms effortlessly and costlessly transfer those surpluses to deficit firms, which require additional savings to sustain their plans for capital accumulation. On the other hand, there exists a welldeveloped, rigorous and elegant literature that uses the multi-agent systems (MAS) approach to analyze the recent financial crisis. This literature focuses exclusively on the financial sector to the neglect of the real economy. In this paper, we build on existing MAS models, relaxing some of the restrictive assumptions regarding the goods market in those models and adding a financial sector. The result is a robust model of the economy in which the real and financial sectors are integrated and interact with one another. The contribution is to show that real-financial interactions increase the likelihood of crises, while preferentially attached financial networks decrease financial instability.
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Bibliographic InfoPaper provided by Trinity College, Department of Economics in its series Working Papers with number 1309.
Length: 37 pages
Date of creation: Jul 2013
Date of revision: Sep 2013
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Web page: http://www.trincoll.edu/Academics/MajorsAndMinors/Economics/Pages/default.aspx
More information through EDIRC
Stock market; Crash; Bubbles; Herding; Adaptation; Agent-based models;
Find related papers by JEL classification:
- D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
- G01 - Financial Economics - - General - - - Financial Crises
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- B16 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Quantitative and Mathematical
- C00 - Mathematical and Quantitative Methods - - General - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-07-15 (All new papers)
- NEP-CBA-2013-07-15 (Central Banking)
- NEP-CMP-2013-07-15 (Computational Economics)
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