Leveraged Network-Based Financial Accelerator

Luca Riccetti, Alberto Russo and Mauro Gallegati

No 371, Working Papers from Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali

Abstract: In this paper we build on the network-based financial accelerator model of Delli Gatti et al. (2010), modelling the firms' financial structure following the "dynamic trade-off theory", instead of the "pecking order theory". Moreover, we allow for multiperiodal debt structure and consider multiple bank-firm links based on a myopic preferred-partner choice. In case of default, we also consider the loss given default rate (LGDR). We find many results: (i) if leverage increases, the economy is riskier; (ii) a higher leverage pro-cyclicality has a destabilizing effect; (iii) a pro-cyclical leverage weakens the monetary policy effect; (iv) a Central Bank that wants to increase the interest rate, should previously check if the banking system is well capitalized; (v) policy maker has to develop the laws about bankruptcies to reduce the LGDR and improve the stability of banks.

Keywords: Leverage; agent based model; bankruptcy cascades; dynamic trade-off theory; monetary policy (search for similar items in EconPapers)
JEL-codes: C63 E32 E52 G01 (search for similar items in EconPapers)
Pages: 31
Date: 2011-12
New Economics Papers: this item is included in nep-cba, nep-cmp and nep-net
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

Downloads: (external link)
http://docs.dises.univpm.it/web/quaderni/pdf/371.pdf First version, 2011 (application/pdf)

Related works:
Journal Article: Leveraged network-based financial accelerator (2013)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:anc:wpaper:371

Access Statistics for this paper

More papers in Working Papers from Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali Contact information at EDIRC.
Bibliographic data for series maintained by Maurizio Mariotti ().