Stock-Flow Consistent Modeling of Default Events Sequence in a Closed Economy
a National Bank of Ukraine, Kyiv, Ukraine
Abstract

By sequentially examining the full chain of events starting from the default of firms through the fire-sale of goods towards the write-offs of bad loans, we develop a new matrix of financial transactions. This matrix is incorporated into the transactions-flows matrix of the closed economy consisting of households, firms, and banks. On the basis of the balance sheet and transactions-flows matrices, this study further constructs a stock-flow consistent model of the closed economy. We also provide the results of a numerical simulation and argue that our model allows studying how such key parameters as the probability of default, the rate of fire-sales (new injected parameter), the recovery rate, and interest rates on loans and deposits affect the performance of banks and firms, observing economic dynamics in time.

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Avaliable online 29 March 2017
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Cite as: Voloshyn, I. (2017). Stock-Flow Consistent Modeling of Default Events Sequence in a Closed Economy. Visnyk of the National Bank of Ukraine, 239, 55-65. https://doi.org/10.26531/vnbu2017.239.055
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