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

56 Pages Posted: 6 Jun 2011

See all articles by Quamrul H. Ashraf

Quamrul H. Ashraf

Williams College - Department of Economics

Boris Gershman

American University - Department of Economics

Peter Howitt

Brown University - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: June 2011

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.

Suggested Citation

Ashraf, Quamrul H. and Gershman, Boris and Howitt, Peter, Banks, Market Organization, and Macroeconomic Performance: An Agent-Based Computational Analysis (June 2011). NBER Working Paper No. w17102. Available at SSRN: https://ssrn.com/abstract=1857805

Quamrul H. Ashraf (Contact Author)

Williams College - Department of Economics ( email )

24 Hopkins Hall Drive
Williamstown, MA 01267
United States
(413) 597-2476 (Phone)
(413) 597-4045 (Fax)

HOME PAGE: http://econ.williams.edu/profile/qha1/

Boris Gershman

American University - Department of Economics ( email )

4400 Massachusetts Avenue NW
Washington, DC 20016-8029
United States

HOME PAGE: http://nw08.american.edu/~gershman/

Peter Howitt

Brown University - Department of Economics ( email )

Box B
Providence, RI 02912
United States
401-863-2145 (Phone)
401-863-1970 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
18
Abstract Views
561
PlumX Metrics