Leverage, liquidity and crisis: A simulation study
We 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.
|Date of creation:||2012|
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