The cobweb, borrowing and financial crises

Pasquale Commendatore and Martin Currie

Journal of Economic Behavior & Organization, 2008, vol. 66, issue 3-4, 625-640

Abstract: Studies of non-linear cobweb models have failed to address a fundamental issue: whether the complex dynamical behavior displayed by such models is consistent with the survival of producers. This paper shows that where borrowing is unconstrained, as is implicitly assumed in standard cobweb models, borrowing results in financial crises. Incorporating constraints on borrowing is needed to salvage cobweb models. Industry performance (in terms both of profitability and of the incidence of bankruptcies) is highly sensitive to the nature of such credit restrictions.

Date: 2008
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Working Paper: The Cobweb, Borrowing and Financial Crises (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeborg:v:66:y:2008:i:3-4:p:625-640

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