Title: Modelling the 2008 financial economic crisis: triggers, perspectives and implications from systems dynamics

Authors: Behnido Y. Calida; Polinpapilinho F. Katina

Addresses: Virginia Tech Transportation Institute, 3500 Transportation Research Plaza, Blacksburg, VA 24061, USA ' National Centers for System of Systems Engineering, Department of Engineering Management and Systems Engineering, Old Dominion University, 2101 N Engineering Systems Building, Norfolk, VA 23508, USA

Abstract: This paper presents a model of the interrelated systems that played a role in the 2008 economic crisis. The analysis was based on some detailed modelling of the banking, real-estate and stock market components of the financial system. The purpose of the study was to understand the interactions among multiple independent systems and also to draw preliminary predictions and policy recommendations that can help to increase the rate of recovery and prevent similar crises in the future. The model uses a 2000-2020 time horizon. Following model development, a systems dynamics (SD) simulation was performed to validate: 1) market recovery date using average US saving rates of the past 30 years; 2) determine effects of policy changes that made bankruptcy declarations more difficult; 3) report on the interest only loans and different 'what-if' scenarios. Actionable insights supporting utility of the model is provided along with future research directions are provided.

Keywords: financial crisis; system dynamics; stock markets; monetary policy; fiscal policy; real estate market; banking industry; modelling; simulation; market recovery date; policy changes; bankruptcy declarations; interest only loans; what-if scenarios.

DOI: 10.1504/IJSSE.2015.075487

International Journal of System of Systems Engineering, 2015 Vol.6 No.4, pp.273 - 301

Received: 20 Jan 2016
Accepted: 20 Jan 2016

Published online: 24 Mar 2016 *

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