Credit-constrained fluctuations and uncertainty in a network economy

Deborah Noguera () and Gabriel Montes-Rojas ()
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Deborah Noguera: Laboratory of Studies in Sociology and Labor Economics (CONICET-UNLP)

Ensayos Económicos, 2022, vol. 1, issue 80, 5-52

Abstract: The financial crises of the 1990s and, especially, the crisis that affected the world economy in 2007- 2008 have shown the importance of modeling economic agents not in isolation but as interconnected and interactive components of dynamically evolving systems. Within this framework, the field of complex systems for the study of economic dynamics has been the object of renewed interest. This paper is based on Minsky's financial instability hypothesis and on the literature of agent-based models to analyze a bank credit market where heterogeneous firms and banks interact following game theory rules. The objective is twofold: (1) to evaluate the influence of bank behavior on the formation of the credit network and the spread of financial difficulties in an agent-based model; and, (2) to analyze the properties of the emerging credit network and its influence on macroeconomic performance. Our simulations suggest that aggregate economic instability may arise as a result of the liquidity preference behavior of banks that restrict credit to the productive sector when they have pessimistic expectations.

Keywords: agent-based modeling; banks behavior; computational economics; credit networks; financial fragility; financial instability (search for similar items in EconPapers)
JEL-codes: E03 E32 G21 H63 (search for similar items in EconPapers)
Date: 2022
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