A model to analyse financial fragility: applications

Charles Goodhart, Pojanart Sunirand and Dimitrios Tsomocos

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: The purpose of our work is to explore contagious financial crises. To this end, we use simplified, thus numerically solvable, versions of our general model [Goodhart, Sunirand and Tsomocos (2003)]. The model incorporates heterogeneous agents, banks and endogenous default, thus allowing various feedback and contagion channels to operate in equilibrium. Such a model leads to different results from those obtained when using a standard representative agent model. For example, there may be a trade-off between efficiency and financial stability, not only for regulatory policies, but also for monetary policy. Moreover, agents which have more investment opportunities can deal with negative shocks more effectively by transferring ‘negative externalities’ onto others.

Keywords: Financial fragility; Competitive banking; General equilibrium; Monetary policy; Regulatory policy (search for similar items in EconPapers)
JEL-codes: D52 E4 E5 G1 G2 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2004-02-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (56)

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http://eprints.lse.ac.uk/24680/ Open access version. (application/pdf)

Related works:
Journal Article: A model to analyse financial fragility: applications (2004)
Working Paper: A Model to Analyse Financial Fragility: Applications (2004)
Working Paper: A Model to Analyse Financial Fragility: Applications (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:24680

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