Debt-Deflation: Concepts, and a Stylised Model

This paper proposes a model of how agents adjust their asset holdings in response to losses in general equilibrium. By emphasising the relation between deflation and financial distress, we capture some original features of the early debt-deflation literature, such as distress selling, instability, and endogenous monetary contraction. The agents affected by a shock sell off assets to prevent their debt from crowding out consumption. But their distress-selling causes a decline in equilibrium prices, and the resulting losses elicit reactions by all agents. This activates several channels of debt-deflation. Yet we show that this process remains stable, even in the presence of large shocks, high indebtedness, and wide-spread default. What keeps the asset market stable is the presence of agents without prior debt or losses, who borrow to exploit the expected asset price recovery. By contrast, debt-deflation becomes unstable when agents try to contain their indebtedness, or when a credit crunch interferes with the accommodation necessary for stability.Debt-Deflation, Leverage, Refinancing, Losses, Financial Distress, Distress Selling, Asset Prices, Credit, Inside Money.

Asset Prices and Banking Distress: A Macroeconomic Approach

This paper links banking with asset prices in a monetary macroeconomic model. The main innovation is to consider how falling asset prices affect the banking system through wide-spread borrower default, while deriving explicit solutions and balance sheet effects even far from the steady state. We find that the effect of falling asset prices is indirect, non-linear, and involves feedback from the banking system in the form of credit contraction. When borrowers repay, the effect ‘passes through’ the bank balance sheet; once borrowers default, asset prices drive bank capital, and constrained credit in turn drives asset prices. This interaction can explain capital crunches, financial instability, and banking crises, either as fundamental or as self-fulfilling outcomes. This model, unlike others, distinguishes between financial and macroeconomic stability, and makes precise the notion of balance sheet vulnerability. It also sheds some light on the role of asset prices in monetary policy and carries regulatory implications. The case studies apply the model to Japan’s Lost Decade, the Nordic Banking Crises, and the US Great Depression.Banking, Asset Prices, Inside Money, Default, Non-Performing Loans, Capital Requirements, Credit Crunch, Financial Instability, Banking Crisis, Vulnerability.

A Unified Approach to Credit Crunches, Financial Instability, and Banking Crises

We link banking and asset prices in a simple monetary macroeconomic model. Our main innovation is to consider how wide-spread default affects the banking system. We find that the interaction of credit, asset prices, and loan losses explains a complete spectrum of outcomes, including financial extremes for which separate theories were thought to apply. When fundamentals deteriorate, an asset price decline causes default among leveraged firms, and banks suffer loan losses. Their size determines whether a capital crunch, financial instability, or a banking crisis occurs. But self-fulfilling capital crunches and banking crises are also possible when loan losses force a credit contraction that feeds back onto asset prices. This model, unlike others, distinguishes between financial and macroeconomic stability, and derives explicit solutions and balance sheet effects even far from the steady state. It is applied to Japan’s Lost Decade and to the US Great Depression. It also sheds light on the role of asset prices in monetary policy, and on the procyclical effect of capital adequacy requirements.Asset Prices, Elastic Credit, Inside Money, Default, Non- Performing Loans, Banking, Capital Adequacy, Credit Crunch, Financial Instability, Banking Crisis, Debt Deflation.

Multi-Objective Calibration For Agent-Based Models

Agent-based modelling is already proving to be an immensely useful tool for scientific and industrial modelling applications. Whilst the building of such models will always be something between an art and a science, once a detailed model has been built, the process of parameter calibration should be performed as precisely as possible. This task is often made difficult by the proliferation of model parameters with non-linear interactions. In addition to this, these models generate a large number of outputs, and their ‘accuracy’ can be measured by many different, often conflicting, criteria. In this paper we demonstrate the use of multi-objective optimisation tools to calibrate just such an agent-based model. We use an agent-based model of a financial market as an exemplar and calibrate the model using a multi-objective genetic algorithm. The technique is automated and requires no explicit weighting of criteria prior to calibration. The final choice of parameter set can be made after calibration with the additional input of the domain expert

Requirements for software engineering languages

This paper analyzes the concepts of software construction embodied in the Draco system. The analysis relates specific mechanisms in Draco to particular software engineering (SE) principles and suggests future research needed to extend the approach. The purpose of the analysis is to help researchers understand Draco better and thus be able to direct in productive directions future research on this type of software engineering tool

Laue gamma-ray lenses for space astrophysics:status and prospects

We review feasibility studies, technological developments and astrophysical prospects for Laue lenses devoted to hard X-/gamma-ray astronomy observations.Comment: 26 pages, 24 figures. Published in a special issue (Volume 2010 (2010), Article ID 215375, doi:10.1155/2010/215375) of the on-line journal "X-Ray Optics and Instrumentation", devoted to "X-Ray Focusing: Techniques and Applications

Towards a theory of software engineering

A theory of software engineering (SE) is presented and its application to explaining and analysing SE situations is illustrated. The theory is based on a characterization of SE representations and the fundamental activities that are applied to them. Motivations for developing a theory and means of establishing its validity are also discussed

Measurement and relevance of the shadow economy in the European Union

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