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Systemic risk and macroeconomic fat tails

Bougheas, Spiros; Harvey, David; Kirman, Alan

Authors

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.

Publication Date Jan 1, 2018
Electronic ISSN 2213-8684
Peer Reviewed Peer Reviewed
Series Title Springer proceedings in complexity
Book Title The economy as a complex spatial system
ISBN 978-3-319-65627-4
APA6 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. Cham: Springer. https://doi.org/10.1007/978-3-319-65627-4_6
DOI https://doi.org/10.1007/978-3-319-65627-4_6
Keywords Systemic risk; Banking system; Aggregate risk; Financial network; Fat tails
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
Copyright Statement Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by/4.0

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Copyright Statement
Copyright information regarding this work can be found at the following address: http://creativecommons.org/licenses/by/4.0





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