Leverage, liquidity and crisis: A simulation study
AbstractWe study the interactions of banks and ?rms within a leverage cycle to understand how capacity utilisation and capital investment interact with funding costs, leverage by banks and ?rms, and liquidity. We show in a simulation study that when ?rms can grow and die by becoming insolvent, and when banks can grow and die as their bad debts increase to unsustainable levels, the real economy cycles around a leverage cycle.
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Bibliographic InfoPaper provided by ASSRU - Algorithmic Social Science Research Unit in its series ASSRU Discussion Papers with number 1205.
Date of creation: 2012
Date of revision:
Leverage; capital investment; capacity utilization; simulation modeling.;
Find related papers by JEL classification:
- E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-01 (All new papers)
- NEP-CMP-2012-02-01 (Computational Economics)
- NEP-MAC-2012-02-01 (Macroeconomics)
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