Credit networks, leverage and macro dynamics

Federico Giri

No 7, FinMaP-Policy Letters from Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents

Abstract: [Introduction] The global crisis of 2007-2008 showed the limits of the mainstream economic models in dealing with complex contingent events as financial crises. Thus, following different methodologies, we developed models that describe the economy as a complex system that evolves according to the interactions of heterogeneous agents. Our models underline the importance the role played by credit network configurations and leverage cycles in determining macroeconomic dynamics. In order to develop macro-prudential policies aimed at increasing the resilience of the economic system, these models try to shed some light into the conditions that may foster the occurrence of crises. In particular, the models underline the importance of monitoring the evolution of credit networks in order to avoid the excessive concentration of the credit market in the hands of few central actors as large banks or firms which become 'too interconnected to fail'. Moreover, the models underline the importance of non-standard monetary policies during and after crises to avoid triggering a new recession ("double dip” recession). [...]

Date: 2016
New Economics Papers: this item is included in nep-hme
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fmppls:7

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