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Credit Bubble and Percolation of Financial Markets
https://doi.org/10.32609/0042-8736-2008-10-4-31
Abstract
In the article a simple model of stochastic credit bubble is proposed that has been growing over the recent years as a result of the global excess liquidity. That has given rise to formation of a random sequence of debt buyers clusters due to widespread practice of loan repayments with new debt issuance. Greatly increased positive feedbacks in the global market speed up the debt growth via structured financial instruments, and the debt bubble bursts at the critical value of global liquidity. The percolation process demonstrates how asset securitization and financial innovations might direct global system towards collapse. The model makes it possible to estimate the power law probability and time to a global collapse.
Keywords
credit crunch,
liquidity,
debt,
percolation,
singularity,
asset securitization,
econophysics,
stock market
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Review
For citations:
Smirnov A. Credit Bubble and Percolation of Financial Markets. Voprosy Ekonomiki. 2008;(10):4-31. (In Russ.) https://doi.org/10.32609/0042-8736-2008-10-4-31
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