Hostname: page-component-cd9895bd7-7cvxr Total loading time: 0 Render date: 2024-12-23T08:53:32.984Z Has data issue: false hasContentIssue false
  • English
  • Français

MACRO- AND MICROPRUDENTIAL POLICIES: SWEET AND LOWDOWN IN A CREDIT NETWORK AGENT-BASED MODEL

Published online by Cambridge University Press:  19 July 2019

Ermanno Catullo ,
Federico Giri  and
Mauro Gallegati
Ermanno Catullo*
Affiliation:
Università Politecnica delle Marche
Federico Giri
Affiliation:
Università Politecnica delle Marche
Mauro Gallegati
Affiliation:
Università Politecnica delle Marche
*
Address correspondence to: Ermanno Catullo, Department of Management, Università Politecnica delle Marche, Piazzale Martelli 8, Ancona, Italy. e-mail: [email protected].
Get access Rights & Permissions [Opens in a new window]

Abstract

The paper presents an agent-based model reproducing a stylized credit network that evolves endogenously through the individual choices of firms and banks. We introduce in this framework a financial stability authority in order to test the effects of different prudential policy measures designed to improve the resilience of the economic system. Simulations show that a combination of micro- and macroprudential policies reduces systemic risk but at the cost of increasing banks’ capital volatility. Moreover, the agent-based methodology allows us to implement an alternative meso regulatory framework that takes into consideration the connections between firms and banks. This policy targets only the more connected banks, increasing their capital requirement in order to reduce the diffusion of local shocks. Our results support the idea that the mesoprudential policy is able to reduce systemic risk without affecting the stability of banks’ capital structure.

Keywords

Microprudential policyMacroprudential policyCredit NetworkMesoprudential policyAgent-based model
Type
Articles
Information
Macroeconomic Dynamics , Volume 25 , Issue 5 , July 2021 , pp. 1227 - 1246
Copyright
© Cambridge University Press 2019

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

REFERENCES

Aikman, D., Haldane, A. G. and Nelson, B. D. (2015) Curbing the credit cycle. The Economic Journal 125(585), 1072–1109.CrossRefGoogle Scholar
Albertazzi, U. and Gambacorta, L. (2009) Bank profitability and the business cycle. Journal of Financial Stability 5(4), 393–409.CrossRefGoogle Scholar
Aldasoro, I., Delli Gatti, D. and Faia, E. (2017) Bank networks: Contagion, systemic risk and prudential policy. Journal of Economic Behavior & Organization 142(C), 164–188.CrossRefGoogle Scholar
Alessandri, P. and Panetta, F. (2015) Prudential Policy at Times of Stagnation: A View from the Trenches. Questioni di Economia e Finanza (Occasional Papers) 300, Bank of Italy, Economic Research and International Relations Area.Google Scholar
Angelini, P., Neri, S. and Panetta, F. (2014) The interaction between capital requirements and monetary policy. Journal of Money, Credit and Banking 46(6), 1073–1112.CrossRefGoogle Scholar
Angelini, P., Nicoletti-Altimari, S. and Visco, I. (2012) Macroprudential, Microprudential and Monetary Policies: Conflicts, Complementarities and Trade-offs. Questioni di Economia e Finanza (Occasional Papers) 140, Bank of Italy, Economic Research and International Relations Area.CrossRefGoogle Scholar
Assenza, T., Cardaci, A., Delli Gatti, D. and Grazzini, J. (2018) Policy experiments in an agent-based model with credit networks. Economics – The Open-Access, Open-Assessment E-Journal 12, 1–17.CrossRefGoogle Scholar
Baptista, R., Farmer, J. D., Hinterschweiger, M., Low, K, Tang, D and Uluc, A. (2016) Macroprudential Policy in an Agent-Based Model of the UK Housing Market. Bank of England, Bank of England Working Papers 619.CrossRefGoogle Scholar
Battiston, S., Delli Gatti, D., Gallegati, M., Greenwald, B. and Stiglitz, J. E. (2012) Liaisons dangereuses: Increasing connectivity, risk sharing, and systemic risk. Journal of Economic Dynamics and Control 36(8), 1121–1141.CrossRefGoogle Scholar
Bernanke, B. S., Gertler, M. and Gilchrist, S. (1999) The financial accelerator in a quantitative business cycle framework. In: Taylor, J. B. and Woodford, M. (eds.), Handbook of Macroeconomics, vol. 1, Chapter 21, pp. 1341–1393. Elsevier.CrossRefGoogle Scholar
Bernardo, M., José-Luis, P., Jessica, R.-P. and Claudia, R. (2019) The international bank lending channel of monetary policy rates and QE: Credit supply, reach-for-yield, and real effects. The Journal of Finance 74(1), 55–90.Google Scholar
BIS (2011). Global Systemically Important Banks: Assessment Methodology and the Additional Loss Absorbency Requirement. Bank of International Settlement, BIS Working Paper.Google Scholar
Bongini, P., Nieri, L. and Pelagatti, M. (2015) The importance of being systemically important financial institutions. Journal of Banking Finance 50, 562–574.CrossRefGoogle Scholar
Catullo, E., Gallegati, M. and Palestrini, A. (2015) Towards a credit network based early warning indicator for crises. Journal of Economic Dynamics and Control 50(C), 78–97.CrossRefGoogle Scholar
Catullo, E., Palestrini, A., Grilli, R. and Gallegati, M. (2018) Early warning indicators and macro-prudential policies: A credit network agent based model. Journal of Economic Interaction and Coordination 13(1), 81–115.CrossRefGoogle Scholar
Cesa-Bianchi, A. and Rebucci, A. (2017) Does easing monetary policy increase financial instability? Journal of Financial Stability 30(C), 111–125.CrossRefGoogle Scholar
Cincotti, S., Raberto, M. and Teglio, A. (2012) Macroprudential policies in an agent-based artificial economy. Revue de l’OFCE 124(5), 205–234.Google Scholar
De Haan, J. and Poghosyan, T. (2012) Bank size, market concentration, and bank earnings volatility in the US. Journal of International Financial Markets, Institutions and Money 22(1), 35–54.CrossRefGoogle Scholar
Delli Gatti, D., Di Guilmi, C., Gaffeo, E., Giulioni, G., Gallegati, M. and Palestrini, A. (2005a) A new approach to business fluctuations: Heterogeneous interacting agents, scaling laws and financial fragility. Journal of Economic Behavior & Organization 56, 489–512.CrossRefGoogle Scholar
Delli Gatti, D., Di Guilmi, C., Gaffeo, E., Giulioni, G., Gallegati, M. and Palestrini, A. (2005b) A new approach to business fluctuations: Heterogeneous interacting agents, scaling laws and financial fragility. Journal of Economic Behavior & Organization 56(4), 489–512.CrossRefGoogle Scholar
Delli Gatti, D., Gallegati, M., Greenwald, B. C., Russo, A. and Stiglitz, J. E. (2010) The financial accelerator in an evolving credit network. Journal of Economic Dynamics & Control 34, 1627–1650.CrossRefGoogle Scholar
Fagiolo, G. and Roventini, A. (2017) Macroeconomic policy in DSGE and agent-based models redux: New developments and challenges ahead. Journal of Artificial Societies and Social Simulation 20(1), 1–1.CrossRefGoogle Scholar
Gai, P., Haldane, A. and Kapadia, S. (2011) Complexity, concentration and contagion. Journal of Monetary Economics 58(5), 453–470.CrossRefGoogle Scholar
Galati, G. and Moessner, R. (2013) Macroprudential policy ? A literature review. Journal of Economic Surveys 27(5), 846–878.Google Scholar
Galati, G. and Moessner, R. (2018) What do we know about the effects of macroprudential policy? Economica 85(340), 735–770.CrossRefGoogle Scholar
Gelain, P., Lansing, K. J. and Natvik, G. J. (2017) Leaning against the credit cycle. Journal of the European Economic Association 16(5), 1350–1393.CrossRefGoogle Scholar
Gerali, A., Neri, S., Sessa, L. and Signoretti, F. (2010) Credit and banking in a DSGE model of the euro area. Journal of Money, Credit and Banking 42, 107–141.CrossRefGoogle Scholar
Gorton, G. and Winton, A. (2003). Financial intermediation. In: Constantinides, G., Harris, M. and Stulz, R. M. (eds.), Handbook of the Economics of Finance, Volume 1, Part 1, Chapter 08, pp. 431–552. Elsevier, 1st edition.Google Scholar
Greenwald, B. C. and Stiglitz, J. E. (1993) Financial market imperfections and business cycles. The Quarterly Journal of Economics 108(1), 77–114.CrossRefGoogle Scholar
Hanson, S. G., Kashyap, A. K. and Stein, J. C. (2011) A macroprudential approach to financial regulation. Journal of Economic Perspectives 25(1), 3–28.CrossRefGoogle Scholar
Hüser, A.-C. (2015) Too interconnected to fail: A survey of the interbank networks literature. Journal of Network Theory in Finance 1(3), 1–50.CrossRefGoogle Scholar
Kelly, B., Lustig, H. and Van Nieuwerburgh, S. (2016) Too-systemic-to-fail: What option markets imply about sector-wide government guarantees. American Economic Review 106(6), 1278–1319.CrossRefGoogle Scholar
Krug, S., Lengnick, M. and Wohltmann, H.-W. (2014) The impact of Basel III on financial (in)stability: An agent-based credit network approach. Quantitative Finance 15(12), 1917–1932.CrossRefGoogle Scholar
Laeven, L., Ratnovski, L. and Tong, H. (2014) Bank Size and Systemic Risk. IMF Staff Discussion Notes 14/4, International Monetary Fund.CrossRefGoogle Scholar
Laeven, L., Ratnovski, L. and Tong, H. (2016) Bank size, capital, and systemic risk: Some international evidence. Journal of Banking Finance 69(S1), S25–S34.CrossRefGoogle Scholar
Lux, T. (2016). A model of the topology of the bank - firm credit network and its role as channel of contagion. Journal of Economic Dynamics and Control 66, 36–53.CrossRefGoogle Scholar
Markose, S., Giansante, S. and Shaghaghi, A. R. (2012) ’Too interconnected to fail’ Financial network of US CDS market: Topological fragility and systemic risk. Journal of Economic Behavior Organization 83(3), 627–646.CrossRefGoogle Scholar
Mazzocchetti, A., Raberto, M., Teglio, A. and Cincotti, S. (2018) Securitization and business cycle: An agent-based perspective. Industrial and Corporate Change 27(6), 1091–1121.CrossRefGoogle Scholar
Mendicino, C. and Punzi, M. T. (2014) House prices, capital inflows and macroprudential policy. Journal of Banking & Finance 49(C), 337–355.CrossRefGoogle Scholar
Minsky, H. P. (1986). Stabilizing an Unstable Economy. New Haven: Yale University Press.Google Scholar
Osinski, J., Seal, K. and Hoogduin, L. (2013) Macroprudential and Microprudential Policies; Toward Cohabitation. International Monetary Fund, IMF Staff Discussion Notes 13/5.CrossRefGoogle Scholar
Popoyan, L., Napoletano, M. and Roventini, A. (2017) Taming macroeconomic instability: Monetary and macro-prudential policy interactions in an agent-based model. Journal of Economic Behavior & Organization 134(C), 117–140.CrossRefGoogle Scholar
Riccetti, L., Russo, A. and Gallegati, M. (2013) Leveraged network-based financial accelerator. Journal of Economic Dynamics and Control 37–8, 1626–1640.CrossRefGoogle Scholar
Riccetti, L., Russo, A. and Gallegati, M. (2015) An agent based decentralized matching macroeconomic model. Journal of Economic Interaction and Coordination 10(2), 305–332.CrossRefGoogle Scholar
Riccetti, L., Russo, A. and Gallegati, M. (2017) Financial regulation and endogenous macroeconomic crises. Macroeconomic Dynamics 22(4), 896–930. Please provide volume number for Ref. “Riccetti et al. (2017)”.CrossRefGoogle Scholar
Tesfatsion, L. and Judd, K. (2006) Handbook of Computational Economics. Volume 2: Agent-Based Computational Economics. North Holland, Amsterdam.Google Scholar
van der Hoog, S. and Dawid, H. (2019) Bubbles, crashes, and the financial cycle: The impact of banking regulation on deep recessions. Macroeconomic Dynamics 23(03), 1205–1246.CrossRefGoogle Scholar
Supplementary material: PDF

Catullo et al. supplementary material

Catullo et al. supplementary material 1

Download Catullo et al. supplementary material(PDF)
PDF 516.3 KB