On the Unsustainable Macroeconomy with Increasing Inequality of Firms Induced by Excessive Liquidity

Wenzhi Zheng, Yuting Lou and Yu Chen
Additional contact information
Wenzhi Zheng: Graduate School of Frontier Sciences, The University of Tokyo, Chiba 277-8563, Japan
Yuting Lou: Graduate School of Frontier Sciences, The University of Tokyo, Chiba 277-8563, Japan
Yu Chen: Graduate School of Frontier Sciences, The University of Tokyo, Chiba 277-8563, Japan

Sustainability, 2019, vol. 11, issue 11, 1-22

Abstract: This research studies how excessive liquidity can trigger catastrophic economic crises in a stylized macroeconomic agent-based model (ABM). Previous studies showed the relevance of the income distribution to the economic crises, whereas we find, in a well-studied macroeconomic ABM endowed with diverse economic performance of firms, while providing moderate liquidity serves as an effective tool to stabilize the economy, excessive liquidity may cause abnormal dispersion of firm’s wealth and the subsequent severe endogenous crises. The mechanism for such large-scale crises is found in the model as the increasing gap of financial fagility between the advantageous and disadvantageous groups of firms. Two factors, diverse production cycles and variable wages, are used to explore the robustness of the occurrence of crises. Moreover, our study shows that the leverage ratio based on aggregate values may underestimate the systemic risk. Hence, a proposal for the new design of the risk measurement in the macro-economy and insights into monetary policies for a sustainable economic development is given.

Keywords: economic crisis; business cycle; agent-based computational economics; quantitative easing (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.mdpi.com/2071-1050/11/11/3075/pdf (application/pdf)
https://www.mdpi.com/2071-1050/11/11/3075/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jsusta:v:11:y:2019:i:11:p:3075-:d:235923

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().