Stock market dynamics, leveraged network-based financial accelerator and monetary policy
Authored by Luca Riccetti, Alberto Russo, Mauro Gallegati
Date Published: 2016
DOI: 10.1016/j.iref.2016.01.012
Sponsors:
European Union
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Model Documentation:
Other Narrative
Mathematical description
Model Code URLs:
Model code not found
Abstract
We build an agent-based model with a threefold financial accelerator:
(i) leverage negative shocks on firms' output make banks less willing to
loan funds and firms less willing to invest, and hence a credit
reduction follows further reducing the output; (ii) stock market due to
lower profit, firms' capitalization on the stock market decreases, thus
the distance-to-default diminishes and it reinforces the leverage
accelerator; (iii) network credit network may propagate the initial
shock. We find that stock market volatility may damage the real economy
if the stock market is too relevant. Our findings have relevant
implications for monetary policy. (C) 2016 Elsevier Inc. All rights
reserved.
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