A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility

Gatti, Domenico Delli; Guilmi, Corrado Di; Gaffeo, Edoardo; Giulioni, Gianfranco; Gallegati, Mauro; Palestrini, Antonio

doi:10.1016/j.jebo.2003.10.012

Cited by 254 publications

(89 citation statements)

References 43 publications

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“…In the economy there is a representative bank whose total credit supply is a multiple of the net worth of the bank E B t (Delli Gatti et al, 2005)…”

Section: The Modelmentioning

confidence: 99%

Inequality, Redistributive Policies and Multiplier Dynamics in an Agent-based Model with Credit Rationing

et al. 2017

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“…In the economy there is a representative bank whose total credit supply is a multiple of the net worth of the bank E B t (Delli Gatti et al, 2005)…”

Section: The Modelmentioning

confidence: 99%

Inequality, Redistributive Policies and Multiplier Dynamics in an Agent-based Model with Credit Rationing

et al. 2017

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“…The basis is an existing model by Delli Gatti et al (2005) that is able to reproduce business cycles and further stylized facts of firm sizes etc. Since individual access to credit is key in this model, it provides a sound basis for introducing the intended links to stock prices and for carrying out a comparative analysis.…”

Section: Discussionmentioning

confidence: 99%

Stock Price Related Financial Fragility and Growth Patterns

Aßmuth

2015

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Stock price related financial fragility and growth patternsPascal Aßmuth AbstractThe total output of an economy usually follows cyclical movements which are accompanied by similar movements in stock prices. The common explanation relies on the demand side. It points out that stock market wealth drives consumption which triggers production afterwards. This paper focuses on influences via the supply side of the economy. The aim of the paper is to explore channels where stock price patterns influence the amount of credit taken by firms. The author examines trend and volatility cycles on the stock market. There are three channels addressed: the stock market valuation as piece of information for the assessment of a firm's creditworthiness, the influence on restructuring prospects in times of financial distress and the stock market related remuneration of the top management affecting capital demand. He asks to which extent a channel may contribute to the stock price-output relation when there is mutual feedback. A model à la Delli Gatti et al. (A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility, 2005) drives the results. Firms take credit to finance their production which determines their financial fragility. If their stochastic revenue is too low, they are bankrupt and leave the economy. The capital loss hurts the bank's equity base and future credit supply is diminished. This causes business cycles. Results show that if the bank assesses creditworthiness according to the stock price then idiosyncratic stock price fluctuations have only a slight effect as they disturb selection and hinder growth. If stock market optimism matters for bankruptcy ruling the level of stock owners' influence does not matter. If optimism is wide spread among stock investors however, investment behaviour is also correlated through the stock prices and this results in huge real economy cycles without any long-term growth. If volatility is considered in the decision of managers they act more prudently and this fosters growth.(Published in Special Issue Agent-based modelling and complexity economics) JELE32 G30 C63

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“…The model is based on work of Stiglitz (1990, 1993) and subsequent work of Delli Gatti et al (2005). A core feature is that firms' managers act in a risk averse manner because bankruptcy of the firm is costly for them personally.…”

Section: The Modelmentioning

confidence: 99%

“…Therefore, as soon as there is financial distress, managers most probably suffer from a monetary loss which is at least foregone salary. The issue of financial distress and bankruptcy is incorporated in the model by Delli Gatti et al (2005) in the simple way that financial distress automatically leads to the liquidation of the firm.…”

Section: The Modelmentioning

confidence: 99%

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Stock Price Related Financial Fragility and Growth Patterns

Aßmuth

2015

SSRN Journal

View full text Add to dashboard Cite

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The total output of an economy usually follows cyclical movements which are accompanied by similar movements in stock prices. The common explanation relies on the demand side. It points out that stock market wealth drives consumption which triggers production afterwards. This paper focuses on influences via the supply side of the economy. The aim of the paper is to explore channels where stock price patterns influence the amount of credit taken by firms. We examine trend and volatility cycles on the stock market. There are three channels addressed: the stock market valuation as piece of information for the assessment of a firm's creditworthiness, the influence on restructuring prospects in times of financial distress and the stock market related remuneration of the top management affecting capital demand. We ask to which extent a channel may contribute to the stock price -output relation when there is mutual feedback. A modelà la Delli Gatti et al. (2005) drives the results. Firms take credit to finance their production which determines their financial fragility. If their stochastic revenue is too low, they are bankrupt and leave the economy. The capital loss hurts the bank's equity base and future credit supply is diminished. This causes business cycles. Results show that if the bank assesses creditworthiness according to the stock price then idiosyncratic stock price fluctuations have only a slight effect as they disturb selection and hinder growth. If stock market optimism matters for bankruptcy ruling the level of stock owners' influence does not matter. If optimism is wide spread among stock investors however, investment behaviour is also correlated through the stock prices and this results in huge real economy cycles without any long-term growth. If volatility is considered in the decision of managers they act more prudently and this fosters growth. Terms of use: Documents in

show abstract

A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility

Cited by 254 publications

References 43 publications

Inequality, Redistributive Policies and Multiplier Dynamics in an Agent-based Model with Credit Rationing

Inequality, Redistributive Policies and Multiplier Dynamics in an Agent-based Model with Credit Rationing

Stock Price Related Financial Fragility and Growth Patterns

Stock Price Related Financial Fragility and Growth Patterns

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