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The Credit Market and the Determinants of Credit Crunches: An Agent Based Modeling Approach

  • Holmberg, Ulf

    ()

    (Department of Economics, Umeå University)

This paper presents a credit market model and finds, using an agent based modeling approach, that credit crunches have a tendency to occur; even when credit markets are almost entirely transparent in the absence of external shocks. We find evidence supporting the asset deterioration hypothesis and results that emphasize the importance of accurate firm quality estimates. In addition, we find that an increase in the debt’s time to maturity, homogenous expected default rates and a conservative lending approach, reduces the probability of a credit crunch. Thus, our results suggest some up till now partially overlooked components contributing to the financial stability of an economy.

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File URL: http://www.econ.umu.se/DownloadAsset.action?contentId=181671&languageId=3&assetKey=ues836
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Paper provided by Umeå University, Department of Economics in its series Umeå Economic Studies with number 836.

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Length: 28 pages
Date of creation: 17 Feb 2012
Date of revision:
Handle: RePEc:hhs:umnees:0836
Contact details of provider: Postal: Department of Economics, Umeå University, S-901 87 Umeå, Sweden
Phone: 090 - 786 61 42
Fax: 090 - 77 23 02
Web page: http://www.econ.umu.se/
Email:


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  1. Allen, Franklin, 1990. "The market for information and the origin of financial intermediation," Journal of Financial Intermediation, Elsevier, vol. 1(1), pages 3-30, March.
  2. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-70, May.
  3. Martin Andreasen & Marcelo Ferman & Pawel Zabczyk, 2013. "The Business Cycle Implications of Banks' Maturity Transformation," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 581-600, October.
  4. Tesfatsion, Leigh, 2006. "Agent-Based Computational Economics: A Constructive Approach to Economic Theory," Handbook of Computational Economics, in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 16, pages 831-880 Elsevier.
  5. Chiesa, Gabriella, 1998. "Information production, banking industry structure and credit allocation," Research in Economics, Elsevier, vol. 52(4), pages 409-430, December.
  6. Broecker, Thorsten, 1990. "Credit-Worthiness Tests and Interbank Competition," Econometrica, Econometric Society, vol. 58(2), pages 429-52, March.
  7. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
  8. Gregory F. Udell, 2009. "How will a credit crunch affect small business finance?," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue mar6.
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