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Non-performing loans, expectations and banking stability: A dynamic model

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  • Bacchiocchi, Andrea
  • Bischi, Gian Italo
  • Giombini, Germana

Abstract

This paper proposes dynamic oligopolistic models to describe heterogenous banks that compete in the loan market. Two boundedly rational banks adopt an adaptive behavior to increase their profits under different assumptions of limited information and bounded computational ability, in the presence of a share of credits that might not be reimbursed (i.e. non-performing loans). Each Nash equilibrium is an equilibrium point of the dynamic adjustments as well. Thus, the repeated strategic interactions between banks may converge to a rational equilibrium according to the parameters’ values and the initial conditions.

Suggested Citation

  • Bacchiocchi, Andrea & Bischi, Gian Italo & Giombini, Germana, 2022. "Non-performing loans, expectations and banking stability: A dynamic model," Chaos, Solitons & Fractals, Elsevier, vol. 157(C).
    • Handle: RePEc:eee:chsofr:v:157:y:2022:i:c:s0960077922001163
    DOI: 10.1016/j.chaos.2022.111906
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    Cited by:

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    2. Anju Goswami, 2023. "COVID-19: boon/disguise for Indian banks?," Journal of Banking Regulation, Palgrave Macmillan, vol. 24(4), pages 381-402, December.

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    More about this item

    Keywords

    Oligopolistic banking model; Non-performing loans; Discrete dynamical system; Bounded rationality; Non-linearity;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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