Towards a credit network based early warning indicator for crises
Authored by Ermanno Catullo, Antonio Palestrini, Mauro Gallegati
Date Published: 2015
DOI: 10.1016/j.jedc.2014.08.011
Sponsors:
European Union
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Model Documentation:
Other Narrative
Mathematical description
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Abstract
This paper presents an agent based model which underlines the importance
of credit network and leverage dynamics in determining the resilience of
the system, defining an early warning indicator for crises. The model
reproduces macroeconomic dynamics emerging from the interactions of
heterogeneous banks and firms in an endogenous credit network. Banks and
firms are linked through multiple credit relations, which derive from
individual target leverage choices: agents choose the more convenient
leverage level, according to a basic reinforcement learning algorithm.
Simulations are calibrated on balance sheet data of banks and firms
quoted in the Japanese stock-exchange markets from 1980 to 2012. (C)
2014 Elsevier B.V. All rights reserved.
Tags
Business Fluctuations
Financial crises
Market imperfections
Cycles
Booms