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Systemic risk and financial development in a monetary model

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  • Moutot, Philippe

Abstract

In a stochastic pure endowment economy with money but no financial markets, two types of agents trade one non-durable good using two alternative types of cash constraints. Simulations of the corresponding variants are compared to Arrow-Debreu and Autarky equilibriums. First, this illustrates how financial innovation or financial regression, including systemic risk, may arise in a neo-classical model with rational expectations and may or may not be countered. Second, the price and money partition dynamics that the two variants generate absent any macroeconomic shock, exhibit jumps as well as fat-tails and vary depending on the discount rate. JEL Classification: E44

Suggested Citation

  • Moutot, Philippe, 2011. "Systemic risk and financial development in a monetary model," Working Paper Series 1352, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20111352
    Note: 339090
    as

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    File URL: https://www.ecb.europa.eu//pub/pdf/scpwps/ecbwp1352.pdf
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    References listed on IDEAS

    as
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    3. Laidler, David, 2010. "Lucas, Keynes, And The Crisis - Erratum," Journal of the History of Economic Thought, Cambridge University Press, vol. 32(3), pages 443-443, September.
    4. Woodford, Michael, 1986. "Stationary sunspot equilibria in a finance constrained economy," Journal of Economic Theory, Elsevier, vol. 40(1), pages 128-137, October.
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    Cited by:

    1. Adewosi, O. Adegoke & Manu Donga & Adamu Idi & Buba Abdullahi, 2018. "An Examination of Drivers of Financial development: Evidence in West African Countries," Pakistan Journal of Humanities and Social Sciences, International Research Alliance for Sustainable Development (iRASD), vol. 6(1), pages :132-143, June.
    2. Yıldırım, Zal & Şendeniz-Yüncü, İlkay, 2025. "Financial development, international financial integration, and income inequality: An emerging markets perspective," Research in International Business and Finance, Elsevier, vol. 77(PA).

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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