Impact of Liquidity Crisis on Economic Recession: Limited Simulation Based on Consumer and Producer Behavior

In this research, an attempt has been made to investigate how the perception of households and firms regarding the economic situation, when they are optimistic or pessimistic, has affected their financial behavior during the two decades of 2000 and 2010. and how this change in behavior has affected macroeconomic variables.To this end, the limited simulation has been carried out augmented with a fully decentralized and micro-founded macro-economic agent-based model compatible with the stock- flow approach. In this simulation, an opinion model, which produces endogenous waves of pessimism and optimism has been added. The idea of optimism and pessimism is a feedback of the individual situation, the behavior of precautionary savings in the household and the ratio of long-term debt to the total capital used in the firm.The results show that in the decade of 2010 compared to the decade of 2000, increasing the level of firms’ leverage and decreasing the level of households’ saving put some households and firms under financial constraints, It has turned them into pessimistic agents and herding behavior has caused the spread of this pessimism among agents. So that pessimistic opinions gain credibility and caused firms to change their financial behavior, increase the firm's financial leverage, and reduce the company's financial self-sufficiency. And the share of wages will take a downward trend, which has resulted in small fluctuations in the economy. Also, due to the interactions between the agents, gradually, with the further spread of pessimism, these small fluctuations have slowed down the dynamism of the whole economy and turned it into a deep economic recession.