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

Quamrul Ashraf, Boris Gershman and Peter Howitt

No 17102, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper is an exploratory analysis of the role that banks play in supporting 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 distinction 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.

JEL-codes: C63 E0 E44 G20 G28 (search for similar items in EconPapers)
Date: 2011-06
New Economics Papers: this item is included in nep-cba and nep-ent
Note: EFG
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Citations: View citations in EconPapers (90)

Published as Ashraf, Quamrul & Gershman, Boris & Howitt, Peter, 2017. "Banks, market organization, and macroeconomic performance: An agent-based computational analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 135(C), pages 143-180.

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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)
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