Goodhart, Charles, Sunirand, Pojanart and Tsomocos, Dimitrios P. (2004) A model to analyse financial fragility: applications. Discussion paper, 482. Financial Markets Group, London School of Economics and Political Science, London, UK.
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The purpose of our work is to explore contagious financial crises. To this end, we use simplified, thus numerically solvable, versions of our general model [Goodhart, Sunirand and Tsomocos (2003)]. The model incorporates heterogeneous agents, banks and endogenous default, thus allowing various feedback and contagion channels to operate in equilibrium. Such a model leads to different results from those obtained when using a standard representative agent model. For example, there may be a trade-off between efficiency and financial stability, not only for regulatory policies, but also for monetary policy. Moreover, agents which have more investment opportunities can deal with negative shocks more effectively by transferring ‘negative externalities’ onto others.
|Item Type:||Monograph (Discussion Paper)|
|Additional Information:||© 2004 The Authors|
|Uncontrolled Keywords:||Financial fragility, Competitive banking, General equilibrium, Monetary policy, Regulatory policy|
|Library of Congress subject classification:||H Social Sciences > HB Economic Theory|
|Journal of Economic Literature Classification System:||D - Microeconomics > D5 - General Equilibrium and Disequilibrium > D52 - Incomplete Markets
G - Financial Economics > G1 - General Financial Markets
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates
G - Financial Economics > G2 - Financial Institutions and Services
|Sets:||Research centres and groups > Financial Markets Group (FMG)
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