Prices, debt and market structure in an agent-based model of the financial market
Thomas Fischer () and
Jesper Riedler ()
No 12-045, ZEW Discussion Papers from ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research
We develop an agent-based model in which heterogenous and boundedly rational agents interact by trading a risky asset at an endogenously set price. Agents are endowed with balance sheets comprising the risky asset as well as cash on the asset side and equity capital as well as debt on the liabilities side. The introduction of balance sheets and debt into an agent-based setup is relatively new to the literature and allows us to tackle several research questions that are mostly inaccessible following conventional methodology, especially representative agent models. A number of findings emerge when simulating the model. We find that the empirically observable log-normal distribution of bank balance sheet size naturally emerges and that higher levels of leverage lead to a greater inequality among agents. When further analyzing the relationship between leverage and balance sheets, we observe that decreasing credit frictions result in an increasingly procyclical behavior of leverage, which is typical for investment banks. We show how decreasing credit frictions increase volatility but decrease the number of bankruptcies.
Keywords: agent-based model; financial markets; instability; balance sheets; leverage; size distribution; credit frictions (search for similar items in EconPapers)
JEL-codes: C63 D53 D84 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed
Downloads: (external link)
Journal Article: Prices, debt and market structure in an agent-based model of the financial market (2014)
Working Paper: Prices, Debt and Market Structure in an Agent-Based Model of the Financial Market (2014)
Working Paper: Prices, debt and market structure in an agent-based model of the financial market (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:zbw:zewdip:12045
Access Statistics for this paper
More papers in ZEW Discussion Papers from ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research Contact information at EDIRC.
Series data maintained by ZBW - German National Library of Economics ().