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Financial Fragility and Interacting Units: an Exercise

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Abstract

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.

Keywords

  • Interest Rate
  • Banking Sector
  • Demand Curve
  • Nominal Interest Rate
  • Solvency Condition

These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

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  • DOI: 10.1007/978-88-470-1778-8_6
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References

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  • Sordi, S. & Vercelli, A. (2006), ‘Financial fragility and economic fluctuations’, Journal of Economic Behavior and Organization 61(4), 543–561

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  • Vercelli, A. (2000), ‘Structural financial instability and cyclical fluctuations’, Structural Change and Economic Dynamics 11(1–2), 139–156

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Correspondence to Simone Giansante .

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© 2010 Springer-Verlag Italia

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Chiarella, C., Giansante, S., Sordi, S., Vercelli, A. (2010). Financial Fragility and Interacting Units: an Exercise. In: Faggini, M., Vinci, C.P. (eds) Decision Theory and Choices: a Complexity Approach. New Economic Windows. Springer, Milano. https://doi.org/10.1007/978-88-470-1778-8_6

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