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http://hdl.handle.net/10419/60105
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| Title: | | Prices, debt and market structure in an agent-based model of the financial market  |
| Authors: | | Fischer, Thomas Riedler, Jesper |
| Issue Date: | | 2012 |
| Series/Report no.: | | ZEW Discussion Papers 12-045 |
| Abstract: | | We develop an agent-based model in which heterogenous and boundedly rational agents interact by trading a risky asset at an endogenously set price. Agents are endowed with balance sheets comprising the risky asset as well as cash on the asset side and equity capital as well as debt on the liabilities side. The introduction of balance sheets and debt into an agent-based setup is relatively new to the literature and allows us to tackle several research questions that are mostly inaccessible following conventional methodology, especially representative agent models. A number of findings emerge when simulating the model. We find that the empirically observable log-normal distribution of bank balance sheet size naturally emerges and that higher levels of leverage lead to a greater inequality among agents. When further analyzing the relationship between leverage and balance sheets, we observe that decreasing credit frictions result in an increasingly procyclical behavior of leverage, which is typical for investment banks. We show how decreasing credit frictions increase volatility but decrease the number of bankruptcies. |
| Subjects: | | agent-based model financial markets instability balance sheets leverage size distribution credit frictions |
| JEL: | | C63 D53 D84 |
| Document Type: | | Working Paper |
| Appears in Collections: | | Publikationen von Forscherinnen und Forschern des ZEW ZEW Discussion Papers
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