From debt crises to financial crashes (and back): a stock-flow consistent model for stock price bubbles

De la crise de la dette au crash financier (et retour): un modèle à cohérence stock-flux des bulles de prix d'actifs

Matheus R. Grasselli and Adrien Nguyen-Huu ()
Additional contact information
Matheus R. Grasselli: Departement of Mathematics and Statistics [Hamilton, McMaster University] - McMaster University [Hamilton, Ontario], Fields Institute for Research In Mathematical Sciences - Fields Institute for Research In Mathematical Sciences
Adrien Nguyen-Huu: CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier

Working Papers from HAL

Abstract: We develop a stochastic macro-financial model in continuous time by integrating two specifications of the Keen economic framework with a financial market driven by a jump-diffusion process. The economic block of the model combines monetary debt-deflation mechanisms with Ponzi-type financial destabilization and is influenced by the financial market through a stochastic interest rate that depends on asset price returns. The financial market block of the model consists of an asset with jump--diffusion price process with endogenous, state-dependent jump intensities driven by speculative credit flows. The model formalizes a feedback loop linking credit expansion, crash risk, perceived return dynamics, and bank lending spreads. Under suitable parameter restrictions, we establish global existence and non-explosion of the coupled system. Numerical experiments illustrate how variations in credit sensitivity and jump parameters generate regimes ranging from stable growth to recurrent boom--bust cycles. The framework provides a tractable setting for analyzing endogenous financial fragility within a mathematically well-posed macro--financial system.

Keywords: Stock-flow consistency; Financial instability; Credit dynamics; Endogenous crash risk; Jump--diffusion; Asset price bubbles (search for similar items in EconPapers)
Date: 2025-03-06
Note: View the original document on HAL open archive server: https://hal.science/hal-05544986v1
References: Add references at CitEc
Citations:

Downloads: (external link)
https://hal.science/hal-05544986v1/document (application/pdf)

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:hal:wpaper:hal-05544986

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().