Early Warning Indicators and Macro-Prudential Policies: A Credit Network Agent Based Model

34 Pages Posted: 10 Jun 2017

See all articles by Ermanno Catullo

Ermanno Catullo

Università Politecnica delle Marche

Ruggero Grilli

Università Politecnica delle Marche - Department of Management

Antonio Palestrini

Università Politecnica delle Marche

Mauro Gallegati

Università Politecnica delle Marche - Faculty of Economics

Date Written: June 9, 2017

Abstract

Credit network configurations play a crucial role in determining the vulnerability of the economic system. Following the network-based financial accelerator approach, we constructed an agent based model reproducing an artificial credit network that evolves endogenously according to the leverage choices of heterogeneous firms and banks. Thus, our work aims at defining both early warning indicators for crises and policy precautionary measures based on the endogenous credit network dynamics. The model is calibrated on a sample of firms and banks quoted in the Japanese stock-exchange markets from 1980 to 2012. Both empirical and simulated data suggest that credit and connectivity variations could be used as early warning measures for crises. Moreover, targeting banks that are central in the credit network in terms of size and connectivity, the capital-related macro-prudential policies may reduce systemic vulnerability without affecting aggregate output.

Keywords: economic crisis, credit network, leverage, heterogeneity, agent based model

JEL Classification: C63, E32, E52, G01

Suggested Citation

Catullo, Ermanno and grilli, ruggero and Palestrini, Antonio and Gallegati, Mauro, Early Warning Indicators and Macro-Prudential Policies: A Credit Network Agent Based Model (June 9, 2017). Available at SSRN: https://ssrn.com/abstract=2983718 or http://dx.doi.org/10.2139/ssrn.2983718

Ermanno Catullo (Contact Author)

Università Politecnica delle Marche ( email )

Piazzale Martelli 8
Ancona, 18039
Italy

Ruggero Grilli

Università Politecnica delle Marche - Department of Management ( email )

Piazzale Martelli 8
Ancona, 60121
Italy

Antonio Palestrini

Università Politecnica delle Marche ( email )

Piazzale Martelli 8
Ancona, 18039
Italy

Mauro Gallegati

Università Politecnica delle Marche - Faculty of Economics ( email )

Piazzale Martelli, 8
60121 Ancona
Italy
++390712207188 (Phone)
++390712207102 (Fax)

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