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

Matthias Lengnick, Sebastian Krug () and Hans-Werner Wohltmann

Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), 2013, vol. 7, No 2013-32, 44 pages

Abstract: The authors develop a simple agent-based and stock flow consistent model of a monetary economy. Their model is well suited to explain money creation along the lines of mainstream theory. Additionally it uncovers a potential instability that follows from a maturity mismatch of assets and liabilities. The authors analyze the impact of interbank lending on the stability of the financial sector and find that an interbank market stabilizes the economy during normal times but amplifies systemic instability, contagion and bankruptcy cascades during crises. But even with no interbank market, indirect contagion can lead to bankruptcy cascades. The authors also find that the existence of large banks threatens stability and that regulatory policy should target large banks more strictly than small.

Keywords: financial instability; agent-based macroeconomics; stock-flow consistency; disequilibrium analysis; Basel II (search for similar items in EconPapers)
JEL-codes: C63 E42 E51 G01 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Downloads: (external link)
http://dx.doi.org/10.5018/economics-ejournal.ja.2013-32
https://www.econstor.eu/bitstream/10419/78708/1/756335698.pdf (application/pdf)

Related works:
Working Paper: Money creation and financial instability: An agent-based credit network approach (2012)
Working Paper: Money creation and financial instability: An agent-based credit network approach (2012)
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:zbw:ifweej:201332

DOI: 10.5018/economics-ejournal.ja.2013-32

Access Statistics for this article

Economics - The Open-Access, Open-Assessment E-Journal (2007-2020) is currently edited by Dennis J. Snower

More articles in Economics - The Open-Access, Open-Assessment E-Journal (2007-2020) from Kiel Institute for the World Economy (IfW Kiel) Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().