Progress in Artificial Economics

Volume 645 of the series Lecture Notes in Economics and Mathematical Systems pp 203-214


Endogenous Credit Dynamics as Source of Business Cycles in the EURACE Model

  • Andrea TeglioAffiliated withDepartament d’Economia, Universitat Jaume I Email author 
  • , Marco RabertoAffiliated withSchool of Science and Engineering, Reykjavik University
  • , Silvano CincottiAffiliated withDIBE-CINEF, Università di Genova

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The paper investigates the relationship between the amount of credit money in the economy and the variability of output and prices in the EURACE model. First we examine if the decision about dividends payment by the firms can affect this variability, then we adopt the policy measure of quantitative easing, that has been largely used by the Fed and the Bank of England during the recent crisis, in order to understand its effect on economic instability. Results show the emergence of endogenous business cycles which are mainly due to the interplay between the real economic activity and its financing through the credit market. In particular, the amplitude of the business cycles strongly raises when the fraction of earnings paid out by firms as dividends is higher, that is when firms are more constrained to borrow credit money to fund their activity.