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Macro and Micro Prudential Policies: Sweet and Lowdown in a Credit Network Agent Based Model

Ermanno Catullo, Federico Giri () and Mauro Gallegati ()

No 434, Working Papers from Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali

Abstract: The paper presents an agent based model reproducing a stylized credit network that evolves endogenously through the individual choices of rms and banks. We introduce in this framework a anancial stability authority in order to test the e ects of different prudential policy measures designed to improve the resilience of the economic system. Simulations show that a combination of micro and macro prudential policies reduces systemic risk, but at the cost of increasing banks' capital volatility. Moreover, 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 di usion of local shocks. Our results support the idea that the meso prudential policy is able to reduce systemic risk without a ecting the stability of banks'capital structure.

Keywords: Micro prudential policy; Macro prudential policy; Credit Network; Meso prudential policy; Agent based model (search for similar items in EconPapers)
JEL-codes: E50 E58 G18 G28 C63 (search for similar items in EconPapers)
Pages: 38
Date: 2019-01
New Economics Papers: this item is included in nep-cba, nep-cmp, nep-hme, nep-mac and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:anc:wpaper:434

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