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Systemic risk and macroeconomic fat tails

Bougheas, Spiros; Harvey, David; Kirman, Alan

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Authors

DAVID HARVEY dave.harvey@nottingham.ac.uk
Professor of Econometrics

Alan Kirman



Contributors

Pasquale Commendatore
Editor

Ingrid Kubin
Editor

Alan Kirman
Editor

Michael Kopel
Editor

Gian Italo Bischi
Editor

Abstract

We propose a mechanism for shock amplification that potentially can account for fat tails in the distribution of the growth rate of national output. We argue that extreme macroeconomic events, such as the Great Depression and the Great Recession, were preceded by significant turmoil in the banking system. We have developed a model of bank network formation and presented numerical simulations that show that, for the benchmark case, aggregate credit follows a random walk. When we introduce fire sales the model does not only produce larger variations in the growth of aggregate credit but also shows that there is an asymmetry between booms and busts that is also consistent with empirical evidence.

Citation

Bougheas, S., Harvey, D., & Kirman, A. (2018). Systemic risk and macroeconomic fat tails. In P. Commendatore, I. Kubin, S. Bougheas, A. Kirman, M. Kopel, & G. I. Bischi (Eds.), The economy as a complex spatial system (119-136). Cham: Springer. https://doi.org/10.1007/978-3-319-65627-4_6

Acceptance Date Jul 31, 2017
Online Publication Date Sep 19, 2017
Publication Date Jan 1, 2018
Deposit Date Sep 20, 2017
Publicly Available Date Mar 29, 2024
Electronic ISSN 2213-8684
Peer Reviewed Peer Reviewed
Pages 119-136
Series Title Springer proceedings in complexity
Series ISSN 2213-8692
Book Title The economy as a complex spatial system
ISBN 978-3-319-65626-7
DOI https://doi.org/10.1007/978-3-319-65627-4_6
Keywords Systemic risk; Banking system; Aggregate risk; Financial network; Fat tails
Public URL https://nottingham-repository.worktribe.com/output/963716
Publisher URL https://link.springer.com/chapter/10.1007/978-3-319-65627-4_6
Related Public URLs http://www.springer.com/gb/book/9783319656267?wt_mc=ThirdParty.SpringerLink.3.EPR653.About_eBook

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