Money creation and financial instability: An agent-based credit network approach

Matthias Lengnick, Sebastian Krug and Hans-Werner Wohltmann

No 2012-61, Economics Discussion Papers from Kiel Institute for the World Economy

Abstract: The authors pick up the standard textbook approach of money creation and develop a simple agent-based alternative. They show that their model is well suited to explain the endogenous creation of money. Although more general, their model still contains the standard results as a limiting case. The authors also uncover a potential instability that is hidden in the standard approach but easily recognized within a strict individual-based and stock-flow consistent version. They show in detail how individual interactions build up systemic risk and how banking crises are triggered by the maturity mismatch of different cash-flows and spread by the depreciation of non-performing loans (e.g. interbank or government debt). --

Keywords: financial instability; endogenous money; agent-based macroeconomics; stock-flow consistency; disequilibrium analysis (search for similar items in EconPapers)
JEL-codes: E42 E51 C63 G01 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp, nep-hme, nep-mac and nep-mon
Date: 2012
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Working Paper: Money creation and financial instability: An agent-based credit network approach (2012)
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Persistent link: http://EconPapers.repec.org/RePEc:zbw:ifwedp:201261

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