The dynamics of leverage in a demand-driven model with heterogeneous firms
Authored by Laura Carvalho
Date Published: 2017
DOI: 10.1016/j.jebo.2017.04.016
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Abstract
This paper introduces heterogeneous microeconomic behavior into a
demand-driven macroeconomic model in order to study the joint dynamics
of leverage and capital accumulation. By identifying the links between
firm level variables and aggregate quantities, the paper contributes
toward a reformulation of the Minskyan formal analysis that explicitly
considers the role of microeconomic factors in generating macroeconomic
instability. The aggregation of heterogeneous agents is not only
performed numerically, as in traditional agent-based models, but also by
means of an innovative analytical methodology, originally developed in
statistical mechanics and recently imported into macroeconomics. The
distinctive feature is in that the joint analysis of the numerical and
analytical solutions of the model sheds light on the effects of
financial fragility at the firm level on the dynamics of the
macroeconomy. In particular, the analysis of steady-state and stability
properties of the system provide additional insights on the role of
behavioral and size heterogeneity of firms for the stocks of aggregate
debt and capital. (C) 2017 Elsevier B.V. All rights reserved.
Tags
Agent-based model
Agents
Financial fragility
growth
investment
Credit
Fluctuations
Income-distribution
Debt
Cycles
Flow
Crisis
Aggregate demand
Master
equation