Banks, market organization, and macroeconomic performance: An agent-based computational analysis

Abstract

This paper is an exploratory analysis of the role that banks play in supporting what Jevons called the "mechanism of exchange." It considers a model economy in which exchange activities are facilitated and coordinated by a self-organizing network of entrepreneurial trading firms. Collectively, these firms play the part of the Walrasian auctioneer, matching buyers with sellers and helping the economy to reach prices at which peoples' trading plans are mutually compatible. Banks affect macroeconomic performance in this economy because their lending activities facilitate the entry and influence the exit decisions of trading firms. Both entry and exit have ambiguous effects on performance, and we resort to computational analysis to understand how they are resolved. Our analysis draws an important distinction between normal and worstcase scenarios, with the economy experiencing systemic breakdowns in the latter. We show that banks can provide a "financial stabilizer" that more than counteracts the familiar financial accelerator, and that the stabilizing role of the banking system is particularly apparent in worst-case scenarios. In line with this result, we also find that under less restrictive lending standards banks are able to more effectively improve macroeconomic performance in the worst-case scenarios.

Rational Heuristics? Expectations and Behaviors in Evolving Economies With Heterogeneous Interacting Agents

“…Banks' supply of credit is a function of their equity and is constrained by capital adequacy requirements inspired by Basel‐framework rules (see e.g., Ashraf, Gershman, and Howitt ; Delli Gatti et al ; Popoyan, Napoletano, and Roventini ; Raberto, Teglio, and Cincotti ). Moreover, banks, which gather deposits before they provide credit, maintain a buffer over the mandatory level of capital, whose magnitude is altered over the business cycle according to their financial fragility (Becker and Ivashina ; Bikker and Metzemakers ), proxied by the ratio between accumulated bad debt (i.e., loans in default) and bank assets (Adrian and Shin ).…”

Macroprudential Policy in a Heterogeneous Environment—An Application of Agent-Based Approach in Systemic Risk Modelling

“…Impact studies of macroprudential policies on the economy within the ABM approach is relatively new. However, the topic refers to the tradition of agent-based models within financial markets [73][74][75][76][77] as well as literature on credit and financial markets from the agent-based perspective [72,[78][79][80][81][82][83][84][85][86][87][88][89][90][91][92][93][94][95][96][97]. In the broader sense, the study also refers to the coevolution models successfully applied in [98,99] to explain the stylized fact of persistency in a time series.…”

Policy Modeling and Applications: State‐of‐the‐Art and Perspectives

“…In economics, Dawid and Delli Gatti [35] categorize seven distinct families of macroeconomic models [36][37][38][39][40][41][42][43][44]. Dosi, Fagiolo, Roventini, and coauthors [41,[45][46][47] probably lead the most prolific evolutionary branch of economic modeling whereas Lengnick is a single standalone model proposal which does not include a credit market [42].…”