Financially constrained fluctuations in an evolving network economy
By: Domenico Delli Gatti ... [et al.].
Contributors: Delli Gatti, Domenico.; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 14112; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 14112.
Publisher: National Bureau of Economic Research
Published: 2008
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "We explore the properties of a credit network characterized by inside credit - i.e.  credit relationships connecting downstream (D) and upstream (U) firms - and outside credit - i.e.  credit relationships connecting firms and banks.  The structure of the network changes over time due to the preferred-partner choice rule: each agent chooses the partner who charges the lowest price.  The net worth of D firms turns out to be the driver of fluctuations.  U production, in fact, is determined by demand of intermediate inputs on the part of D firms and production of the latter is financially constrained, i.e.  determined by the availability of internal finance proxied by net worth.  The output of simulations shows that at the macroeconomic level a business cycle can develop as a consequence of the complex interaction of the agents' financial conditions.  We can also reproduce the main stylized facts of firms' demography, i.e.  the power law distribution of firms' size and the Laplace distribution of firms' growth rates"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 7/18/2008.

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