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A predator–prey model to explain cycles in credit-led economies

Author

Listed:
  • Óscar Dejuán

    (Universidad de Castilla–La Mancha, Albacete, Spain)

  • Daniel Dejuán-Bitriá

    (London School of Economics, UK)

Abstract

This paper develops a predator–prey model to explain cycles in credit-led economies. The predator is the part of the financial sector that issues credit money for non-output transactions. It increases the indebtedness ratio and inflates bubbles that eventually have a negative impact on the real rate of growth (the prey). From this basis, we build a couple of models that may lead to self-contained or explosive cycles. Even in the first case, there is a risk of a financial collapse when certain variables move far away from their long-term equilibrium positions. In order to tame the cycle and avoid extreme positions, governments should ban the expansion of credit money for the purchase of assets and introduce permanent checks to risky credit.

Suggested Citation

  • Óscar Dejuán & Daniel Dejuán-Bitriá, 2018. "A predator–prey model to explain cycles in credit-led economies," Review of Keynesian Economics, Edward Elgar Publishing, vol. 6(2), pages 159-179, April.
    • Handle: RePEc:elg:rokejn:v:6:y:2018:i:2:p159-179
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    More about this item

    Keywords

    business cycles; financial instability; predator–prey models; post-Keynesian economics;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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