The Financial Network Channel of Monetary Policy Transmission: An Agent-Based Model

Michel Alexandre, Gilberto Lima, Luca Riccetti and Alberto Russo

No 2022_01, Working Papers, Department of Economics from University of São Paulo (FEA-USP)

Abstract: The purpose of this paper is to contribute to a further understanding of the impact of monetary policy shocks on a financial network, which we dub the “financial network channel of monetary policy transmission†. To this aim, we develop an agent-based model (ABM) in which banks extend loans to firms. The bank-firm credit network is endogenously time-varying as determined by plausible behavioral assumptions, with both firms and banks being always willing to close a credit deal with the network partner perceived to be less risky. We then assess through simulations how exogenous shocks to the policy interest rate affect some key topological measures of the bank-firm credit network (density, assortativity, size of largest component, and degree distribution). Our simulations show that such topological features of the bank-firm credit network are significantly affected by shocks to the policy interest rate, and this impact varies quantitatively and qualitatively with the sign, magnitude, and duration of the shocks.

Keywords: Financial network; monetary policy shocks; agent-based modeling. (search for similar items in EconPapers)
JEL-codes: C63 E51 E52 G21 (search for similar items in EconPapers)
Date: 2022-01-19, Revised 2022-01-21
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cmp, nep-cwa, nep-fdg, nep-hme, nep-mac, nep-mon, nep-net and nep-ore
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Related works:
Journal Article: The financial network channel of monetary policy transmission: an agent-based model (2023)
Working Paper: The financial network channel of monetary policy transmission: An agent-based model (2022)
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