6533b7d2fe1ef96bd125e18d

RESEARCH PRODUCT

Financial Fragility and Interacting Units: an Exercise

Simone GiansanteSimone GiansanteAlessandro VercelliSerena SordiCarl Chiarella

subject

Computational economicsFinancial economicsmedia_common.quotation_subjectMonetary policyFinancial fragilityagent-based modelMarket makerMarket liquidityInterest rateComplex dynamicsOrder (exchange)EconomicsEconometricsmedia_common

description

This paper assumes that financial fluctuations are the result of the dynamic interaction between liquidity and solvency conditions of individual financial units. The framework is designed as a heterogeneous agent model which proceeds through discrete time steps within a finite time horizon. The interaction at the microlevel between financial units and the market maker, who is in charge of clearing the market, produces interesting complex dynamics. The model is analyzed by means of numerical simulations and agent-based computational economics (ACE) approach. The behaviour and evolution of financial units are studied for different parameter regimes in order to show the importance of the parameter setting in the emergence of complex dynamics. Monetary policy implications for the banking sector are also discussed. © Springer-Verlag Italia 2010.

https://doi.org/10.1007/978-88-470-1778-8_6