Multi-country decentralized agent based model: Macroeconomic dynamics and vulnerability in a simplified currency union

Ermanno Catullo and Mauro Gallegati

No 50, FinMaP-Working Papers from Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents

Abstract: We developed a multi country agent based simulation model with endogenous incremental technological change. Macroeconomic dynamics derive from simple behavioral and interacting rules defining the actions of adaptive firms, banks and households (Delli Gatti et al., 2008; Riccetti et al., 2014; Caiani et al., 2015). Countries join a currency union with a perfectly integrated good market, while labor and capital are not ex- changed across countries. We observe that credit dynamics are strictly associated to business cycle: phases of credit growth are associated with increasing leverage and connectivity that creates the conditions for crisis. Moreover, we tested the effects of different fiscal regimes on output dynamics, showing that in a common currency area restrictive fiscal regimes may increase country inequality and systemic vulnerability. Inequality between countries derives from differences in technological progress patterns which open competitiveness gaps. Conversely, in fiscal regimes where public deficits are excessively high the public debt burden tends to increase transferring risk from the private sector to the public one.

Date: 2015
New Economics Papers: this item is included in nep-cmp, nep-mac and nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fmpwps:50

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