Making a Breach: The Incorporation of Agent-Based Models into the Bank of England's Toolkit

Romain Plassard

No 2020-30, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: After the financial crisis of 2008, several central banks incorporated agent-based models (ABMs) into their toolkit. The Bank of England (BoE) is a case in point. Since 2008, it has developed four ABMs. Under which conditions could ABMs breach the walls of the BoE? Then, there is the issue of the size of the breach. In which divisions economists used ABMs? Was agent-based modeling used to inform a wide range of policies? Last but not least, there is the issue of the fate of ABMs at the BoE. Is the breach going to narrow or, on the contrary, to widen? What are the forces underlying the deployment of ABMs at the BoE? My article aims to address these issues. I show that institutional reforms were central to the use of ABMs at the BoE. I also show that so far, ABMs have been a marginal tool at the BoE. They were not used to inform monetary policy. Neither were they used to coordinate the BoE's microprudential, macroprudential, and monetary policies. ABMs were only used to inform the BoE's macroprudential policy. I conclude the article by examining the conditions for a broader use of ABMs at the BoE.

Keywords: Bank of England; agent-based models; macroprudential policy; monetary policy; DSGE models (search for similar items in EconPapers)
Pages: 36 pages
Date: 2020-06
New Economics Papers: this item is included in nep-cba, nep-cmp, nep-hme, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:gre:wpaper:2020-30

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