EconPapers    
Economics at your fingertips  
 

The effects of interbank networks on efficiency and stability in a macroeconomic agent-based model

Andrea Gurgone, Giulia Iori and Saqib Jafarey

Journal of Economic Dynamics and Control, 2018, vol. 91, issue C, 257-288

Abstract: We develop a macroeconomic agent-based model that consists of firms, banks, unions and households who interact on labour, goods, credit and interbank markets. The model endogenises pricing decisions by firms, wage setting by unions and interest rate setting by banks on both firm and interbank lending. Banks also set leverage targets and precautionary liquidity buffers on the basis of internal risk models. Our model produces endogenous fluctuations driven by the pricing behaviour of firms and the wage setting behaviour of unions. Fluctuations lead to loan defaults which are exacerbated as lenders reduce lending and charge higher interest rates, inducing a credit crunch. We also study how making the inter-banking network more connected affects the key outcomes of the economy and find that while the flow of funds from surplus banks to firms can be increased, the latter effect is soon dominated by increasing instability in the real sector as firms default at higher rates. While the banking sector experiences fewer defaults as a whole, losses on the interbank market increase as a source of bank defaults.

Keywords: Financial fragility; Liquidity hoarding; Macroeconomic stability; Agent-based macroeconomics; Interbank market (search for similar items in EconPapers)
JEL-codes: G21 G28 E32 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0165188918300976
Full text for ScienceDirect subscribers only

Related works:
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:eee:dyncon:v:91:y:2018:i:c:p:257-288

Access Statistics for this article

Journal of Economic Dynamics and Control is currently edited by J. Bullard, C. Chiarella, H. Dawid, C. H. Hommes, P. Klein and C. Otrok

More articles in Journal of Economic Dynamics and Control from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().

 
Page updated 2018-07-28
Handle: RePEc:eee:dyncon:v:91:y:2018:i:c:p:257-288