Networks are the main subject of a rapidly growing literature in economics which applies the conceptual and analytical tools already developed in sociology, computer science and physics and/or provides new notions and methods to be applied specifically to economic phenomena.

We explore the properties of a credit network characterized by inside credit, i.e. credit relationships connecting downstream (DS) and upstream (US) firms, and outside credit, i.e. credit relationships connecting firms and banks. The structure of the network changes over time due to the preferred-partner choice rule: in every period, each customer search for the minimum of the prices charged by a randomly selected set of suppliers; if the minimum price is lower than the price the customer paid to the old supplier in the previous period, he will switch to the new supplier, otherwise he will stick to the old supplier. In the jargon of the network literature, the number of links connecting the nodes of the customers to a certain node of the suppliers changes over time so that the topology of the network is also in a process of continuous evolution.

The endogenous evolution of credit interlinkages affects the extent of bankruptcies diffusion, because of the interdependence of firm and bank behaviours: the default of one agent (e.g., a downstream firm) can cause the default of another agent by decreasing its financial soundness (e.g., an upstream firm linked to the bankrupt downstream one) and so on, depending on the number of links among agents (the default of an agent with many links implies a high probability of bankruptcy diffusion across the network).

The net worth of DS firms turns out to be the driver of growth and fluctuations. US production, in fact, is determined by demand of intermediate inputs on the part of DS firms. The output of simulations shows that a business cycle at the macroeconomic level can develop as a consequence of the complex interaction of the heterogeneous financial conditions of the agents involved. In this context we can study the emergence of bankruptcy chains. We can also reproduce the main facts of firms demography: power law distribution of firms size and Laplace distribution of growth rates.

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