Towards a Credit Network Based Early Warning Indicator for Crises

27 Pages Posted: 27 Mar 2014

See all articles by Ermanno Catullo

Ermanno Catullo

Università Politecnica delle Marche

Mauro Gallegati

Università Politecnica delle Marche - Faculty of Economics

Antonio Palestrini

Università Politecnica delle Marche

Date Written: March 25, 2014

Abstract

This paper presents an agent based model which underlines the importance of credit network and leverage dynamics in determining the resilience of the system, defining an early warning indicator for crises. The model reproduces macroeconomic dynamics emerging from the interactions of heterogeneous banks and firms in an endogenous credit network. Banks and firms are linked through multiple credit relations, which derives from individual target leverage choices: agents choose the more convenient leverage level, according to a basic reinforcement learning algorithm.

Simulations are calibrated on balance sheet data of banks and firms quoted in the Japanese stock-exchange markets from 1980 to 2012.

Keywords: economic crisis, credit network, leverage, heterogeneity, agent based model

JEL Classification: C63, E32, E52, G01

Suggested Citation

Catullo, Ermanno and Gallegati, Mauro and Palestrini, Antonio, Towards a Credit Network Based Early Warning Indicator for Crises (March 25, 2014). Available at SSRN: https://ssrn.com/abstract=2414549 or http://dx.doi.org/10.2139/ssrn.2414549

Ermanno Catullo (Contact Author)

Università Politecnica delle Marche ( email )

Piazzale Martelli 8
Ancona, 18039
Italy

Mauro Gallegati

Università Politecnica delle Marche - Faculty of Economics ( email )

Piazzale Martelli, 8
60121 Ancona
Italy
++390712207188 (Phone)
++390712207102 (Fax)

Antonio Palestrini

Università Politecnica delle Marche ( email )

Piazzale Martelli 8
Ancona, 18039
Italy

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