Document Type
Article
Publication Date
1-1-2018
Abstract
In this paper we study an agent-based model of economy to investigate the impact of borrowing capacity on financial instability and contagion. We divide an economy into agents that interact via flow of funds and express the financial instability level of each agent as a function of the time derivatives of its wealth, cash inflows, and borrowing capacity. We show that among these factors the borrowing capacity, which itself is determined by other economic constraints, a ects the most the financial instability, and it can even cause contagion through feedback loop formed by flow of funds. We use historical time series of the integrated macroeconomic accounts of the United Stated from 1960 to date to verify our conjecture by quantifying the financial instability levels of the agents under di erent level of borrowing capacity and how they a ect one another during the period of the 2007-10 U.S. subprime mortgage crisis. Finally shortcomings from the limitations of data collecting practice is addressed along with partial yet compatible results for selected Eurozone countries.
DOI
10.1142/S0219024918500607
MSU Digital Commons Citation
Choi, Youngna, "Borrowing Capacity, Financial Instability, and Contagion: Case Study of the U.S. Subprime Mortgage Crisis" (2018). Department of Applied Mathematics and Statistics Faculty Scholarship and Creative Works. 24.
https://digitalcommons.montclair.edu/appliedmath-stats-facpubs/24
Published Citation
Choi, Y. (2018). Borrowing Capacity, Financial Instability, and Contagion: Case Study of the US Subprime Mortgage Crisis. Financial Instability, and Contagion: Case Study of the US Subprime Mortgage Crisis (January 6, 2018).