Stock-Flow Consistent Modeling of Default Events Sequence in a Closed Economy

Ihor Voloshyn ()
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Ihor Voloshyn: National Bank of Ukraine

Visnyk of the National Bank of Ukraine, 2017, issue 239, 55-65

Abstract: By sequentially examining the full chain of events starting from the default of firms through the fire-sale of goods towards the write-offs of bad loans, we develop a new matrix of financial transactions. This matrix is incorporated into the transactions-flows matrix of the closed economy consisting of households, firms, and banks. On the basis of the balance sheet and transactions-flows matrices, this study further constructs a stock-flow consistent model of the closed economy. We also provide the results of a numerical simulation and argue that our model allows studying how such key parameters as the probability of default, the rate of fire-sales (new injected parameter), the recovery rate, and interest rates on loans and deposits affect the performance of banks and firms, observing economic dynamics in time.

Keywords: Closed economy; stock-flow consistent framework; probability of default; fire-sales; write-offs (search for similar items in EconPapers)
JEL-codes: E16 E17 E21 E23 G21 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:ukb:journl:y:2017:i:239:p:55-65

DOI: 10.26531/vnbu2017.239.055

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