The financial accelerator in an evolving credit network
Domenico Delli Gatti (),
Mauro Gallegati (),
Alberto Russo and
Journal of Economic Dynamics and Control, 2010, vol. 34, issue 9, pages 1627-1650
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)
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (54) Track citations by RSS feed
Downloads: (external link)
http://www.sciencedirect.com/science/article/B6V85 ... 2321ce59b91285e82ead
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
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 ().