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An investigation into the dynamics of financial catastrophe

Raghavendra, Srinivas
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Publication Date
2012
Keywords
Financial crisis, Endogenous credit, Composition effect, Debt default, Systemic illiquidity, Cusp catastrophe, Abrupt change, Hysteresis
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Working Paper
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Citation
Bhaduri, Amit; Guttal, Vishwesha (2012) An Investigation into the Dynamics of Financial Catastrophe. Working Paper
Abstract
The paper captures the dynamics of interaction between the real and the nancial sector in a model of endogenous credit that exhibits multiple steady states and generates phase transitions with catastrophic abrupt- ness. This resembles aspects of nancial meltdowns witnessed in global capital markets in recent times. The paper also explains how nan- cial crisis assume dierent characteristics under alternative monetary arrangements in regimes of prot- and wage-led growth and, concludes with linking the analysis to the recent nancial crises in the United States and in the Eurozone.
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Publisher
Economics Working Paper
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Attribution-NonCommercial-NoDerivs 3.0 Ireland
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Economics (Working Papers)