Early warning indicators and macro-prudential policies: a credit network agent based model
Authored by Ermanno Catullo, Ruggero Grilli, Antonio Palestrini, Mauro Gallegati
Date Published: 2018
DOI: 10.1007/s11403-017-0199-y
Sponsors:
European Union
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Model Documentation:
Other Narrative
Mathematical description
Model Code URLs:
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Abstract
Credit network configurations play a crucial role in determining the
vulnerability of the economic system. Following the network-based
financial accelerator approach, we constructed an agent based model
reproducing an artificial credit network that evolves endogenously
according to the leverage choices of heterogeneous firms and banks.
Thus, our work aims at defining both early warning indicators for crises
and policy precautionary measures based on the endogenous credit network
dynamics. The model is calibrated on a sample of firms and banks quoted
in the Japanese stock-exchange markets from 1980 to 2012. Both empirical
and simulated data suggest that credit and connectivity variations could
be used as early warning measures for crises. Moreover, targeting banks
that are central in the credit network in terms of size and
connectivity, the capital-related macro-prudential policies may reduce
systemic vulnerability without affecting aggregate output.
Tags
Market
Heterogeneity
Financial accelerator
Leverage
Distributions
Contagion
Crises
Cycles
Credit network
Economic crisis
Agent based
model
Tail