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Firm–bank credit network, business cycle and macroprudential policy

Author

Listed:
  • Luca Riccetti

    (Università degli Studi di Macerata)

  • Alberto Russo

    (Universitat Jaume I
    Università Politecnica delle Marche)

  • Mauro Gallegati

    (Università Politecnica delle Marche)

Abstract

We present an agent-based model to study firm–bank credit market interactions in different phases of the business cycle. The business cycle is exogenously set, and it can give rise to various scenarios. Compared to other models in this literature strand, we improve the mechanism according to which the dividends are distributed, including the possibility of stock repurchase by firms. In addition, we locate firms and banks over a space and firms may ask credit to many banks, resulting in a complex spatial network. The model reproduces a long list of stylized facts and their dynamic evolution as described by the cross-correlations among model variables. The model allows us to test the effectiveness of rules designed by the current financial regulation, such as the Basel III countercyclical capital buffer. We find that the effectiveness of this rule changes in different business cycle environments and this should be considered by policy makers.

Suggested Citation

  • Luca Riccetti & Alberto Russo & Mauro Gallegati, 2022. "Firm–bank credit network, business cycle and macroprudential policy," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 17(2), pages 475-499, April.
    • Handle: RePEc:spr:jeicoo:v:17:y:2022:i:2:d:10.1007_s11403-021-00317-6
    DOI: 10.1007/s11403-021-00317-6
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    Cited by:

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    More about this item

    Keywords

    Agent-based modeling; Credit network; Business cycle; Financial regulation; Macroprudential policy;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G01 - Financial Economics - - General - - - Financial Crises

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