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Search for Profits and Business Fluctuations: How Banks' Behaviour Explain Cycles?

Emanuele Ciola, Edoardo Gaffeo and Mauro Gallegati

No 450, Working Papers from Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali

Abstract: This paper develops and estimates a macroeconomic model of real-financial markets interactions in which the behaviour of banks generates endogenous business cycles. We do so in the context of a computational agent-based framework, where the channelling of funds from depositors to investors occurring through intermediaries nformation and matching frictions. Since banks compete in both deposit and credit markets, the whole dynamic is driven by endogenous fluctuations in their profits. In particular, we assume that intermediaries adopt a simple learning process, which consists of copying the strategy of the most profitable competitors while setting their interest rates. Accordingly, the emergence of strategic complementarity - mainly due to the accumulation of information capital - leads to periods of sustained growth followed by sharp recessions in the simulated economy.

Keywords: Keywords: Agent-based macroeconomics; Simulation-based estimation; Intermediaries behaviour; Business cycles (search for similar items in EconPapers)
JEL-codes: C15 C51 C63 E32 E44 (search for similar items in EconPapers)
Pages: 32
Date: 2021-01
New Economics Papers: this item is included in nep-cmp, nep-fdg and nep-mac
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Persistent link: https://EconPapers.repec.org/RePEc:anc:wpaper:450

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