Leveraged Network-Based Financial Accelerator
Luca Riccetti (),
Alberto Russo and
Mauro Gallegati ()
No 371, Working Papers from Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali
In this paper we build on the network-based financial accelerator model of Delli Gatti et al. (2010), modelling the firms' financial structure following the "dynamic trade-off theory", instead of the "pecking order theory". Moreover, we allow for multiperiodal debt structure and consider multiple bank-firm links based on a myopic preferred-partner choice. In case of default, we also consider the loss given default rate (LGDR). We find many results: (i) if leverage increases, the economy is riskier; (ii) a higher leverage pro-cyclicality has a destabilizing effect; (iii) a pro-cyclical leverage weakens the monetary policy effect; (iv) a Central Bank that wants to increase the interest rate, should previously check if the banking system is well capitalized; (v) policy maker has to develop the laws about bankruptcies to reduce the LGDR and improve the stability of banks.
Keywords: Leverage; agent based model; bankruptcy cascades; dynamic trade-off theory; monetary policy (search for similar items in EconPapers)
JEL-codes: C63 E32 E52 G01 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-cmp and nep-net
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Journal Article: Leveraged network-based financial accelerator (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:anc:wpaper:371
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