In this paper we build on the network-based financial accelerator model of Delli Gatti et al. (2010), modelling the firms' financial structure following the “dynamic trade-off theory”, instead of the “pecking order theory”. Moreover, we allow for multiperiodal debt structure and consider multiple bank-firm links based on a myopic preferred-partner choice. In case of default, we also consider the loss given default rate (LGDR). We find many results: (i) if leverage increases, the economy is riskier; (ii) a higher leverage pro-cyclicality has a destabilizing effect; (iii) a pro-cyclical leverage weakens the monetary policy effect; (iv) a Central Bank that wants to increase the interest rate, should previously check if the banking system is well capitalized; (v) policy maker has to develop the laws about bankruptcies to reduce the LGDR and improve the stability of banks.
Leveraged Network-Based Financial Accelerator / Riccetti, Luca; A., Russo; M., Gallegati. - STAMPA. - 371(2011). - QUADERNI DI RICERCA.
Leveraged Network-Based Financial Accelerator
RICCETTI, LUCA;
2011
Abstract
In this paper we build on the network-based financial accelerator model of Delli Gatti et al. (2010), modelling the firms' financial structure following the “dynamic trade-off theory”, instead of the “pecking order theory”. Moreover, we allow for multiperiodal debt structure and consider multiple bank-firm links based on a myopic preferred-partner choice. In case of default, we also consider the loss given default rate (LGDR). We find many results: (i) if leverage increases, the economy is riskier; (ii) a higher leverage pro-cyclicality has a destabilizing effect; (iii) a pro-cyclical leverage weakens the monetary policy effect; (iv) a Central Bank that wants to increase the interest rate, should previously check if the banking system is well capitalized; (v) policy maker has to develop the laws about bankruptcies to reduce the LGDR and improve the stability of banks.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.