Advanced Search
MyIDEAS: Login to save this paper or follow this series

A behavioral macroeconomic model with endogenous boom-bust cycles and leverage dynamcis

Contents:

Author Info

  • Scheffknecht, Lukas
  • Geiger, Felix

Abstract

We merge a financial market model with leverage-constrained, heterogeneous agents with a reduced-form version of the New-Keynesian standard model. Agents in both submodels are assumed to be boundedly rational. The fi nancial market model produces endogenously arising boom-bust cycles. It is also capable to generate highly non-linear deleveraging processes, fi re sales and ultimately a default scenario. Asset price booms are triggered via self-fulfilling prophecies. Asset price busts are induced by agents' choice of an increasingly fragile balance sheet structure during good times. Their vulnerability is inevitably revealed by small, randomly occurring shocks. Our transmission channel of financial market activity to the real sector embraces a recent strand of literature shedding light on the link between the active balance sheet management of financial market participants, the induced procyclical fluctuations of desired risk compensations and their final impact on the real economy. We show that a systematic central bank reaction on financial market developments dampens macroeconomic volatility considerably. Furthermore, restricting leverage in a countercyclical fashion limits the magnitude of financial cycles and hence their impact on the real economy. --

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://econstor.eu/bitstream/10419/54191/1/679702776.pdf
Download Restriction: no

Bibliographic Info

Paper provided by University of Hohenheim, Center for Research on Innovation and Services (FZID) in its series FZID Discussion Papers with number 37-2011.

as in new window
Length:
Date of creation: 2011
Date of revision:
Handle: RePEc:zbw:fziddp:372011

Contact details of provider:
Postal: D-70593 Stuttgart
Phone: 0711-459-22476
Fax: 0711-459-23360
Email:
Web page: http://www.fzid.uni-hohenheim.de/
More information through EDIRC

Related research

Keywords: behavioral economics; New-Keynesian macroeconomics; monetary policy; agent-based financial market model; leverage; macroprudential regulation; financial stability; asset price bubbles; systemic risk;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Castelnuovo , Efrem & Nisticò, Salvatore, 2010. "Stock market conditions and monetary policy in an DSGE model for the US," Research Discussion Papers, Bank of Finland 11/2010, Bank of Finland.
  2. Vasco Curdia & Michael Woodford, 2010. "Credit Spreads and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 42(s1), pages 3-35, 09.
  3. Klaus Adam & Albert Marcet, 2010. "Booms and Busts in Asset Prices," IMES Discussion Paper Series 10-E-02, Institute for Monetary and Economic Studies, Bank of Japan.
  4. Carl Chiarella, 1992. "The Dynamics of Speculative Behaviour," Working Paper Series, Finance Discipline Group, UTS Business School, University of Technology, Sydney 13, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
  5. Day, Richard H. & Huang, Weihong, 1990. "Bulls, bears and market sheep," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 14(3), pages 299-329, December.
  6. Tobias Adrian & Hyun Song Shin, 2009. "Money, Liquidity, and Monetary Policy," American Economic Review, American Economic Association, American Economic Association, vol. 99(2), pages 600-605, May.
  7. Ben S. Bernanke & Mark Gertler, 1995. "Inside the Black Box: The Credit Channel of Monetary Policy Transmission," Journal of Economic Perspectives, American Economic Association, vol. 9(4), pages 27-48, Fall.
  8. Lux, T. & M. Marchesi, . "Volatility Clustering in Financial Markets: A Micro-Simulation of Interacting Agents," Discussion Paper Serie B 437, University of Bonn, Germany, revised Jul 1998.
  9. Mordecai Kurz, 2011. "Symposium: on the role of market belief in economic dynamics, an introduction," Economic Theory, Springer, Springer, vol. 47(2), pages 189-204, June.
  10. Lengnick, Matthias & Wohltmann, Hans-Werner, 2011. "Agent-based financial markets and New Keynesian macroeconomics: A synthesis," Economics Working Papers 2011,09, Christian-Albrechts-University of Kiel, Department of Economics.
  11. Zephyr, 2010. "The city," City, Taylor & Francis Journals, Taylor & Francis Journals, vol. 14(1-2), pages 154-155, February.
  12. Tobias Adrian & Emanuel Moench & Hyun Song Shin, 2010. "Macro risk premium and intermediary balance sheet quantities," Staff Reports, Federal Reserve Bank of New York 428, Federal Reserve Bank of New York.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Lukas Scheffknecht, 2013. "Contextualizing Systemic Risk," ROME Working Papers, ROME Network 201317, ROME Network.
  2. Ahmad Naimzada & Marina Pireddu, 2014. "Real and financial interacting oscillators: a behavioral macro-model with animal spirits," Working Papers, University of Milano-Bicocca, Department of Economics 268, University of Milano-Bicocca, Department of Economics, revised Feb 2014.
  3. Fischer, Thomas & Riedler, Jesper, 2013. "Prices, debt and market structure in an agent-based model of the financial market," ZEW Discussion Papers 12-045 [rev.], ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  4. Lengnick, Matthias & Wohltmann, Hans-Werner, 2010. "Agent-based financial markets and New Keynesian macroeconomics: A synthesis," Economics Working Papers 2010,10, Christian-Albrechts-University of Kiel, Department of Economics.
  5. Westerhoff, Frank, 2011. "Interactions between the real economy and the stock market," BERG Working Paper Series 84, Bamberg University, Bamberg Economic Research Group.
  6. Ahmad Naimzada & Marina Pireddu, 2013. "Dynamic behavior of real and stock markets with a varying degree of interaction," Working Papers, University of Milano-Bicocca, Department of Economics 245, University of Milano-Bicocca, Department of Economics, revised Jun 2013.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:zbw:fziddp:372011. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.