Deleveraging crises and deep recessions: a behavioural approach

Abstract

International audienceMacroeconomic dynamics are characterized by alternating patterns of periods of relative stability and large swings. Standard micro-founded macro-economic models account for these patterns through exogenous and persistent shocks. In this paper, we develop a fully decentralized and micro-founded macro-economic agent-based model, augmented with an opinion model, which produces endogenous waves of pessimism and optimism that feed back into firms' leverage and households' precautionary saving behaviour. A major emergent property of our model is precisely the complex successions of stable and unstable macro-economic regimes. The model is further able to account for a wide spectrum of macro-and micro empirical regularities. Within this framework, we analyse a series of macro-economic phenomena of key relevance in the current macro-economic debate, especially the occurrence of deleveraging crises and Fisherian debt-deflation recessions. Our analysis suggests that the relative dynamics of prices and wages and the resulting income distribution along a deflation-ary path are critical determinants of the severity of the recession, and the chances of recovery

Taming Macroeconomic Instability: Monetary and Macro Prudential Policy Interactions in an Agent-Based Model

“…Indeed, the effects of the adoption of the complete Basel III regulation are much stronger than the summation of the impact of its single components. In addition, the levers of Basel III are non-additive: the inclusion of additional components does not always 2 For germane macroeconomic agent-based models with credit and financial markets, see Delli Gatti et al (2005Gatti et al ( , 2010, Ashraf et al (2011), Gai et al (2011), Battiston et al (2012, Geanakoplos et al (2012), Raberto et al (2012Raberto et al ( , 2014, Dosi et al (2010Dosi et al ( , 2013Dosi et al ( , 2015, Riccetti et al (2013), Dawid et al (2014), Krug et al (2015), Napoletano et al (2015), Seppecher & Salle (2015), van der Hoog & Dawid (2015), van der Hoog (2015), and the papers in Gaffard & Napoletano (2012). See Fagiolo & Roventini (2012) for a critical comparison of macroeconomic policies in standard DSGE and agent-based models.…”

Is the market really a good teacher?

“…We intend to provide here a self-contained presentation of Jamel, and we pay a specific attention to the description and the explanation of the new features that this paper introduces. We refer the interested reader to Seppecher & Salle (2015) for an exhaustive discussion and justification of the rest of the assumptions of the model. Appendix B provides the pseudo-code of the model that makes the timing of events together with each equation explicit, and defines each variable and each parameter.…”

“…We use a baseline scenario of the model derived from the empirical validation exercise performed in Seppecher & Salle (2015), but we do not attempt to statistically match empirical micro-or macroeconomic regularities in this paper. We use the model as a virtual macroeconomic playground to test the simple idea of adaptation through the BSP learning model.…”

“…We set δ P = 0.04 and δ W = 0.02, which implies more flexible prices than wages. This relative wage rigidity is necessary to dampen, and even interrupt deflationary dynamics along the bust dynamics, so that the single bank does not go bankrupt (see Seppecher & Salle (2015) for more detail).…”

Macroeconomic Policy in DSGE and Agent-Based Models Redux: New Developments and Challenges Ahead

“…Delli Gatti et al, 2010;Battiston et al, 2012), deleveraging dynamics (e.g. Raberto et al, 2012;Seppecher and Salle, 2015), etc.…”