We build an agent-based model with a threefold financial accelerator: (i) leverage—negative shocks on firms' output make banks less willing to loan funds and firms less willing to invest, and hence a credit reduction follows further reducing the output; (ii) stock market—due to lower profit, firms' capitalization on the stock market decreases, thus the distance-to-default diminishes and it reinforces the leverage accelerator; (iii) network—credit network may propagate the initial shock. We find that stock market volatility may damage the real economy if the stock market is too relevant. Our findings have relevant implications for monetary policy.

Stock market dynamics, leveraged network-based financial accelerator and monetary policy

RICCETTI, LUCA;
2016

Abstract

We build an agent-based model with a threefold financial accelerator: (i) leverage—negative shocks on firms' output make banks less willing to loan funds and firms less willing to invest, and hence a credit reduction follows further reducing the output; (ii) stock market—due to lower profit, firms' capitalization on the stock market decreases, thus the distance-to-default diminishes and it reinforces the leverage accelerator; (iii) network—credit network may propagate the initial shock. We find that stock market volatility may damage the real economy if the stock market is too relevant. Our findings have relevant implications for monetary policy.
Elsevier Inc.
Internazionale
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11393/235412
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