On the Unsustainable Macroeconomy with Increasing Inequality of Firms Induced by Excessive Liquidity

Abstract

This research studies how excessive liquidity can trigger catastrophic economic crises in a stylized macroeconomic agent-based model (ABM). Previous studies showed the relevance of the income distribution to the economic crises, whereas we find, in a well-studied macroeconomic ABM endowed with diverse economic performance of firms, while providing moderate liquidity serves as an effective tool to stabilize the economy, excessive liquidity may cause abnormal dispersion of firm’s wealth and the subsequent severe endogenous crises. The mechanism for such large-scale crises is found in the model as the increasing gap of financial fagility between the advantageous and disadvantageous groups of firms. Two factors, diverse production cycles and variable wages, are used to explore the robustness of the occurrence of crises. Moreover, our study shows that the leverage ratio based on aggregate values may underestimate the systemic risk. Hence, a proposal for the new design of the risk measurement in the macro-economy and insights into monetary policies for a sustainable economic development is given.

Liquidity spillover in cryptocurrency markets

“…In contrast, the return volume ratio for Binance coin, Ripple, and Tether exhibit the opposite outcome; they are positively skewed, showing that huge positive price returns are more prevalent than large negative returns. The statistics for the Ljung-Box Q (10) and Q2 (10) are used to test the null hypothesis that autocorrelations are equal to zero in residuals and squared residuals, for all lags up to lag 10. The Jarque-Bera (JB) test results beliefs based the variation from normalcy for all five ratios series, and it rejects the null of the normal distribution for all five series hypotheses.…”

“…Smimou examines the dynamic macro-liquidity link in terms of consumer attitudes/sentiments [9]. Also, Zheng contend that, while giving moderate liquidity is an efficient tool for stabilizing the economy within a well-studied macroeconomic ABM that permits enterprises to diversify their economic performance, excessive liquidity can result in abnormal wealth dispersion and consequent severe endogenous crises [10]. These articles confirm that liquidity is an important concept in economics and that many policy issues, including central banking, are closely related to it.…”

The Impact of Green Technology Research and Development (R&D) Investment on Performance: A Case Study of Listed Energy Companies in Beijing, China

“…Conversely, low liquidity can limit a company's ability to fund green technology R&D activities, which negatively impacts performance [36]. However, excessive liquidity can lead to the abnormal dispersion of corporate assets and a potential endogenous crisis [70]. Therefore, it is hypothesised that the relationship between R&D investment in green technologies and firm performance differs at different stages of capital intensity.…”