Here.
Not an experimental paper.
We study a credit network and, in particular, an interbank system with an agent-based model. To understand the relationship between business cycles and cascades of bankruptcies, we model a three-sector economy with goods, credit and interbank market. In the interbank market, the participating banks share the risk of bad debits, which may potentially spread a bank’s liquidity problems through the network of banks. Our agent-based model sheds light on the correlation between bankruptcy cascades and the endogenous economic cycle of booms and recessions. It also demonstrates the serious trade-off between, on the one hand, reducing risks of individual banks by sharing them and, on the other hand, creating systemic risks through credit-related interlinkages of banks. As a result of our study, the dynamics underlying the meltdown of financial markets in 2008 becomes much better understandable.
From:
Gabriele Tedeschi Universitá Politecnica delle Marche, Ancona, Italy
Amin MazloumianETH Zurich, Zurich, Switzerland
Mauro GallegatiUniversitá Politecnica delle Marche, Ancona, Italy
Dirk Helbing ETH Zurich, Zurich, Switzerland
Not an experimental paper.
We study a credit network and, in particular, an interbank system with an agent-based model. To understand the relationship between business cycles and cascades of bankruptcies, we model a three-sector economy with goods, credit and interbank market. In the interbank market, the participating banks share the risk of bad debits, which may potentially spread a bank’s liquidity problems through the network of banks. Our agent-based model sheds light on the correlation between bankruptcy cascades and the endogenous economic cycle of booms and recessions. It also demonstrates the serious trade-off between, on the one hand, reducing risks of individual banks by sharing them and, on the other hand, creating systemic risks through credit-related interlinkages of banks. As a result of our study, the dynamics underlying the meltdown of financial markets in 2008 becomes much better understandable.
From:
Gabriele Tedeschi Universitá Politecnica delle Marche, Ancona, Italy
Amin MazloumianETH Zurich, Zurich, Switzerland
Mauro GallegatiUniversitá Politecnica delle Marche, Ancona, Italy
Dirk Helbing ETH Zurich, Zurich, Switzerland