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Fluctuations-induced regime shifts in the Endogenous Credit system with time delay

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  • Wu, Anshun
  • Dong, Yang
  • Luo, Yuhui
  • Zeng, Chunhua

Abstract

The model of endogenous credit that exhibits multiple steady states and generates phase transitions with catastrophic abruptness has been investigated. This resembles aspects of financial meltdowns witnessed in global capital markets in 2007. In this paper, time delay and fluctuations (noises) are introduced into the endogenous credit model, and a stochastic asset price dynamics model with time delay is established. The effects of time delay, fluctuations and cross-correlation between two noises on the probability distribution and the mean first passage time (MFPT) are analyzed, and the theoretical results are in agreement with the numerical results. It is shown from time series and probability distribution that the noises and time delay can induce regime shifts between two stable states. For the positive cross-correlation between two noises (λ > 0.0), the MFPT exhibits a maximum for some characteristic values of the noise intensity, which identifies the signature of the noise-enhanced stability (NES) phenomenon for asset price. The cross-correlation between two noises enhances the NES phenomenon for asset price, while time delay weakens it. However for the zero and negative intensity of noise correlation (λ ≤ 0.0), the MFPT decreases as the noise intensity increases, namely, the NES phenomenon disappears for λ ≤ 0.0.

Suggested Citation

  • Wu, Anshun & Dong, Yang & Luo, Yuhui & Zeng, Chunhua, 2020. "Fluctuations-induced regime shifts in the Endogenous Credit system with time delay," Chaos, Solitons & Fractals, Elsevier, vol. 134(C).
    • Handle: RePEc:eee:chsofr:v:134:y:2020:i:c:s0960077920300849
    DOI: 10.1016/j.chaos.2020.109682
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