Firm-bank credit network, business cycle and macroprudential policy

Luca Riccetti, Alberto Russo and Mauro Gallegati

No 2020/16, Working Papers from Economics Department, Universitat Jaume I, Castellón (Spain)

Abstract: We present an agent-based model to study firm-bank credit market interactions in different phases of the business cycle. The business cycle is exogenously set and it can give rise to various scenarios. Compared to other models in this literature strand, we improve the mechanism according to which the dividends are distributed, including the possibility of stock repurchase by firms. In addition, we locate firms and banks over a space and firms may ask credit to many banks, resulting in a complex spatial network. The model reproduces a long list of stylized facts and their dynamic evolution as described by the cross-correlations among model variables. The model allows us to test the effectiveness of rules designed by the current financial regulation, such as the Basel 3 countercyclical capital buffer. We find that its effectiveness of this rule changes in different business cycle environments and this should be considered by policy makers.

Keywords: Agent-based modeling; credit network; business cycle; financial regulation; macroprudential policy (search for similar items in EconPapers)
JEL-codes: C63 E32 E52 G01 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2020
New Economics Papers: this item is included in nep-bec, nep-cba, nep-cmp, nep-mac, nep-net and nep-ore
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Related works:
Journal Article: Firm–bank credit network, business cycle and macroprudential policy (2022)
Working Paper: Firm-bank credit networks, business cycle and macroprudential policy (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:jau:wpaper:2020/16

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