Pietro A. Vagliasindi

Recent economic literature indicates that imperfections in the credit market can amplify business fluctuations causing financial fragility. Starting from the framework of Greenwald and Stiglitz (1993) and Delli Gatti et al. (2005), we make a more careful model of the banking sector in Italy and its impact on firms’ investment behaviour in an economic model with heterogeneous agents. We focus on the productive sector, considering mainly risk neutral firms, facing capital increasing adjustment costs. One of our aims is to comprehensively examine all incomes from capital in a static equilibrium, in order to consider the corporate and individual levels in a unitary framework. In doing so, we take a first step towards building an operational micro-simulation model, which will allow us to replicate the main empirical evidence of the credit market and provide useful and concrete policy recommendations on monetary and fiscal systems and policies.