A Model to Analyse Financial Fragility: Applications

Goodhart, Charles, Sunirand, Pojanart and Tsomocos, Dimitrios (2004) A Model to Analyse Financial Fragility: Applications. Journal of Financial Stability, 1 (1). pp. 1-30.


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 [C.A.E. Goodhart, P. Sunirand, D.P. Tsomocos, A Model to Analyse Financial Fragility, Oxford Financial Research Centre Working Paper No. 2003fe13, 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 who have more investment opportunities can deal with negative shocks more effectively by transferring ‘negative externalities’ onto others

Item Type: Article
Keywords: Financial fragility; Competitive banking; General equilibrium; Monetary policy; Regulatory policy; finance
Subject(s): Finance
Date Deposited: 19 Feb 2012 12:01
Last Modified: 27 Feb 2017 10:16
Funders: N/A
URI: http://eureka.sbs.ox.ac.uk/id/eprint/1866

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