EconPapers    
Economics at your fingertips  
 

The financial accelerator in an evolving credit network

Domenico Delli Gatti (), Mauro Gallegati (), Bruce Greenwald, Alberto Russo and Joseph E. Stiglitz

Journal of Economic Dynamics and Control, 2010, vol. 34, issue 9, pages 1627-1650

Abstract: We model a credit network characterized by credit relationships connecting (i) downstream (D) and upstream (U) firms and (ii) firms and banks. The net worth of D firms is the driver of fluctuations. The production of D firms and of their suppliers (U firms) in fact, is constrained by the availability of internal finance--proxied by net worth--to the D firms. The structure of credit interlinkages changes over time due to an endogeneous process of partner selection, which leads to the polarization of the network. At the aggregate level, the distribution of growth rates exhibits negative skewness and excess kurtosis. When a shock hits the macroeconomy or a significant group of agents in the credit network a bankruptcy avalanche can follow if agents' leverage is critically high. In a nutshell we want to explore the properties of a network-based financial accelerator.

Keywords: Business; fluctuations; Financial; instability; Bankruptcy; chains (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (45) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/B6V85 ... 2321ce59b91285e82ead
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:eee:dyncon:v:34:y:2010:i:9:p:1627-1650

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Series data maintained by Zhang, Lei ().

 
Page updated 2014-09-08
Handle: RePEc:eee:dyncon:v:34:y:2010:i:9:p:1627-1650