Systemic risk and macroeconomic fat tails
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 s...
| Main Authors: | , , |
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| Other Authors: | |
| Format: | Book Section |
| Language: | English |
| Published: |
Springer
2018
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| Subjects: | |
| Online Access: | https://eprints.nottingham.ac.uk/46540/ |
| _version_ | 1848797350553714688 |
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| author | Bougheas, Spiros Harvey, David Kirman, Alan |
| author2 | Commendatore, Pasquale |
| author_facet | Commendatore, Pasquale Bougheas, Spiros Harvey, David Kirman, Alan |
| author_sort | Bougheas, Spiros |
| building | Nottingham Research Data Repository |
| collection | Online Access |
| description | 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. |
| first_indexed | 2025-11-14T20:02:29Z |
| format | Book Section |
| id | nottingham-46540 |
| institution | University of Nottingham Malaysia Campus |
| institution_category | Local University |
| language | English |
| last_indexed | 2025-11-14T20:02:29Z |
| publishDate | 2018 |
| publisher | Springer |
| recordtype | eprints |
| repository_type | Digital Repository |
| spelling | nottingham-465402018-01-19T04:43:49Z https://eprints.nottingham.ac.uk/46540/ Systemic risk and macroeconomic fat tails Bougheas, Spiros Harvey, David Kirman, Alan 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. Springer Commendatore, Pasquale Kubin, Ingrid Bougheas, Spiros Kirman, Alan Kopel, Michael Bischi, Gian Italo 2018 Book Section PeerReviewed application/pdf en cc_by https://eprints.nottingham.ac.uk/46540/1/BougheasHarveyKirman.pdf Bougheas, Spiros, Harvey, David and Kirman, Alan (2018) Systemic risk and macroeconomic fat tails. In: The economy as a complex spatial system. Springer proceedings in complexity . Springer, Cham, pp. 119-136. ISBN 978-3-319-65627-4 Systemic risk; Banking system; Aggregate risk; Financial network; Fat tails https://link.springer.com/chapter/10.1007/978-3-319-65627-4_6 doi:10.1007/978-3-319-65627-4_6 doi:10.1007/978-3-319-65627-4_6 |
| spellingShingle | Systemic risk; Banking system; Aggregate risk; Financial network; Fat tails Bougheas, Spiros Harvey, David Kirman, Alan Systemic risk and macroeconomic fat tails |
| title | Systemic risk and macroeconomic fat tails |
| title_full | Systemic risk and macroeconomic fat tails |
| title_fullStr | Systemic risk and macroeconomic fat tails |
| title_full_unstemmed | Systemic risk and macroeconomic fat tails |
| title_short | Systemic risk and macroeconomic fat tails |
| title_sort | systemic risk and macroeconomic fat tails |
| topic | Systemic risk; Banking system; Aggregate risk; Financial network; Fat tails |
| url | https://eprints.nottingham.ac.uk/46540/ https://eprints.nottingham.ac.uk/46540/ https://eprints.nottingham.ac.uk/46540/ |