Leverage, liquidity and crisis: A simulation study

Antoine Godin and Stephen Kinsella ()

No 1205, ASSRU Discussion Papers from ASSRU - Algorithmic Social Science Research Unit

Abstract: 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.

Keywords: Leverage; capital investment; capacity utilization; simulation modeling. (search for similar items in EconPapers)
JEL-codes: E22 E32 E37 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cmp and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:trn:utwpas:1205

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