Banks, Market Organization, and Macroeconomic Performance: An Agent-Based Computational Analysis

Quamrul Ashraf, Boris Gershman and Peter Howitt

No 2011-06, Center for Development Economics from Department of Economics, Williams College

Abstract: This paper is an exploratory analysis of the role that banks play in supporting what Jevons called the mechanism of exchange. It considers a model economy in which exchange activities are facilitated and coordinated by a self-organizing network of entrepreneurial trading firms. Collectively, these firms play the part of the Walrasian auctioneer, matching buyers with sellers and helping the economy to approximate equilibrium prices that no individual is able to calculate. Banks affect macroeconomic performance in this economy because their lending activities facilitate entry of trading firms and also influence their exit decisions. Both entry and exit have conflicting effects on performance, and we resort to computational analysis to understand how they are resolved. Our analysis sheds new light on the conflict between micro-prudential bank regulation and macroeconomic stability. Specifically, it draws an important difference between "normal" performance of the economy and "worst-case" scenarios, and shows that micro prudence conflicts with macro stability only in bad times. The analysis also shows that banks provide a "financial stabilizer" that in some respects can more than counteract the more familiar financial accelerator.

Keywords: Agent-based computational model; Market organization; Bank regulation; Macroeconomic stability; Financial stabilizer (search for similar items in EconPapers)
JEL-codes: C63 E00 E63 G20 G28 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2011-05
New Economics Papers: this item is included in nep-cba and nep-cmp
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (84)

Downloads: (external link)
https://web.williams.edu/Economics/wp/AshrafGershmanHowittBanks.pdf Full text (application/pdf)

Related works:
Journal Article: Banks, market organization, and macroeconomic performance: An agent-based computational analysis (2017)
Working Paper: Banks, Market Organization, and Macroeconomic Performance: An Agent-Based Computational Analysis (2016)
Working Paper: Banks, Market Organization, and Macroeconomic Performance: An Agent-Based Computational Analysis (2015)
Working Paper: Banks, Market Organization, and Macroeconomic Performance: An Agent-Based Computational Analysis (2011)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wil:wilcde:2011-06

Ordering information: This working paper can be ordered from

The price is Free.

Access Statistics for this paper

More papers in Center for Development Economics from Department of Economics, Williams College Williamstown, MA 01267. Contact information at EDIRC.
Bibliographic data for series maintained by Greg Phelan ().