Macro-Modelling, Default and Money

Goodhart, Charles, Romanidis, Nikolaos, Tsomocos, Dimitrios and Shubik, Martin (2016) Macro-Modelling, Default and Money. Saïd Business School Working Paper.

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Abstract

Mainstream macro-models have assumed away financial frictions, in particular default. The minimum addition in order to introduce financial intermediaries, money and liquidity into such models is the possibility of default. This, in turn, requires that institutions and price formation mechanisms become a modelled part of the process, a ‘playable game’. Financial systems are not static, nor necessarily reverting to an equilibrium, but evolving processes, subject to institutional control mechanisms themselves subject to socio/political development. Process-oriented models of strategic market games can be translated into consistent stochastic models incorporating default and boundary constraints.

Item Type: Oxford Saïd Research Paper
Keywords: Finance; Default; Money; Financial Intermediation; Liquidity; Modelling
Subject(s): Finance
Date Deposited: 02 Jun 2016 14:58
Last Modified: 21 Sep 2018 14:59
Funders: N/A
URI: http://eureka.sbs.ox.ac.uk/id/eprint/6172

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