Credit money and macroeconomic instability in the agent-based model and simulator Eurace
This paper investigates the interplay between monetary aggregates and the dynamics and variability of output and prices by considering both the money supplied by commercial banks as credit to firms and the fiat money created by the central bank through the quantitative easing monetary policy. The authors address this problem by means of an agent-based model and simulator, called Eurace, which is characterized by a complete set of interrelated markets and different types of interacting agents, modeled according to a rigorous balance-sheet approach. The dynamics of credit money is endogenous and depends on the supply of credit from the banking system, which is constrained by its equity base, and the demand of credit from firms in order to finance their production activity. Alternative dynamic paths for credit money have been produced by setting different firms' dividend policies. Results point out the strict dependence of output and prices dynamics on monetary aggregates, and show the emergence of endogenous business cycles which are mainly due to the interplay between the real economic activity and its financing through the credit market. In particular, the amplitude of the business cycles strongly rises when the fraction of earnings paid out by firms as dividends is higher, that is when firms are more constrained to borrow credit money to fund their activity. This interesting evidence can be explained by the fact that the level of firms leverage, defined as the debt-equity ratio, can be considered ad a proxy of the likelihood of bankruptcy, an event which causes mass layoffs and supply decrease.
Volume (Year): 4 (2010)
Issue (Month): ()
|Contact details of provider:|| Postal: |
Phone: +49 431 8814-1
Fax: +49 431 8814528
Web page: http://www.economics-ejournal.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kahneman, Daniel & Tversky, Amos, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Econometric Society, vol. 47(2), pages 263-91, March.
- Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
- Deaton, A., 1991.
"Household Saving in LDC'S: Credit Markets, Insurance, And Welfare,"
153, Princeton, Woodrow Wilson School - Development Studies.
- Deaton, Angus, 1992. " Household Saving in LDCs: Credit Markets, Insurance and Welfare," Scandinavian Journal of Economics, Wiley Blackwell, vol. 94(2), pages 253-73.
- Basu, N & Pryor, R & Quint, T, 1998. "ASPEN: A Microsimulation Model of the Economy," Computational Economics, Society for Computational Economics, vol. 12(3), pages 223-41, December.
- Shlomo Benartzi & Richard H. Thaler, 1993.
"Myopic Loss Aversion and the Equity Premium Puzzle,"
NBER Working Papers
4369, National Bureau of Economic Research, Inc.
- Benartzi, Shlomo & Thaler, Richard H, 1995. "Myopic Loss Aversion and the Equity Premium Puzzle," The Quarterly Journal of Economics, MIT Press, vol. 110(1), pages 73-92, February.
- Domenico Delli Gatti & Mauro Gallegati & Bruce Greenwald & Alberto Russo & Joseph Stiglitz, 2009. "Business fluctuations and bankruptcy avalanches in an evolving network economy," Journal of Economic Interaction and Coordination, Springer, vol. 4(2), pages 195-212, November.
- Marco Raberto & Andrea Teglio & Silvano Cincotti, 2008. "Integrating Real and Financial Markets in an Agent-Based Economic Model: An Application to Monetary Policy Design," Computational Economics, Society for Computational Economics, vol. 32(1), pages 147-162, September.
- Christopher D. Carroll, 2001.
"A Theory of the Consumption Function, with and without Liquidity Constraints,"
Journal of Economic Perspectives,
American Economic Association, vol. 15(3), pages 23-45, Summer.
- Christopher D. Carroll, 2001. "A Theory of the Consumption Function, With and Without Liquidity Constraints (Expanded Version)," NBER Working Papers 8387, National Bureau of Economic Research, Inc.
- Christopher D. Carroll, 2001. "Codes for A Theory of the Consumption Function, With and Without Liquidity Constraints," QM&RBC Codes 37, Quantitative Macroeconomics & Real Business Cycles.
- H. Dawid & S. Gemkow & P. Harting & K. Kabus & K. Wersching & M. Neugart, 2008. "Skills, Innovation, and Growth: An Agent-Based Policy Analysis," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), Justus-Liebig University Giessen, Department of Statistics and Economics, vol. 228(2+3), pages 251-275, June.
- LeBaron, Blake, 2006. "Agent-based Computational Finance," Handbook of Computational Economics, in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 24, pages 1187-1233 Elsevier.
- Tesfatsion, Leigh S., 2001.
"Structure, Behavior, and Market Power in an Evolutionary Labor Market with Adaptive Search,"
Staff General Research Papers
1914, Iowa State University, Department of Economics.
- Tesfatsion, Leigh, 2001. "Structure, behavior, and market power in an evolutionary labor market with adaptive search," Journal of Economic Dynamics and Control, Elsevier, vol. 25(3-4), pages 419-457, March.
- Tesfatsion, Leigh S., 2009. "Structure, Behavior, and Market Power in an Evolutionary Labor Market with Adaptive Search," Staff General Research Papers 1681, Iowa State University, Department of Economics.
- Leigh Tesfatsion, 2000. "Structure, Behavior, and Market Power in an Evolutionary Labor Market with Adaptive Search," Computational Economics 0004002, EconWPA.
- Joshua M. Epstein & Robert L. Axtell, 1996. "Growing Artificial Societies: Social Science from the Bottom Up," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550253, June.
- Herbert Dawid & Simon Gemkow & Philipp Harting & Michael Neugart, 2009. "On the Effects of Skill Upgrading in the Presence of Spatial Labor Market Frictions: An Agent-Based Analysis of Spatial Policy Design," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 12(4), pages 5.
- Christophe Deissenberg & Sander Van Der Hoog & Herbert Dawid, 2008. "EURACE: A Massively Parallel Agent-Based Model of the European Economy," Working Papers halshs-00339756, HAL.
When requesting a correction, please mention this item's handle: RePEc:zbw:ifweej:201026. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.