Firm-Bank Credit Network, Business Cycle and Macroprudential Policy

28 Pages Posted: 9 Apr 2020

See all articles by Luca Riccetti

Luca Riccetti

Università degli Studi di Macerata

Alberto Russo

Università Politecnica delle Marche, Ancona - Department of Management

Mauro Gallegati

Polytechnic University of Marche - Faculty of Economics

Date Written: February 25, 2020

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 the 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.

JEL Classification: C63, E32, E52, G01.

Suggested Citation

Riccetti, Luca and Russo, Alberto and Gallegati, Mauro, Firm-Bank Credit Network, Business Cycle and Macroprudential Policy (February 25, 2020). Available at SSRN: https://ssrn.com/abstract=3543994 or http://dx.doi.org/10.2139/ssrn.3543994

Luca Riccetti (Contact Author)

Università degli Studi di Macerata ( email )

via Crescimbeni
Macerata
Italy

HOME PAGE: http://docenti.unimc.it/luca.riccetti

Alberto Russo

Università Politecnica delle Marche, Ancona - Department of Management ( email )

Piazzale Martelli, 8
60121 Ancona
Italy

Mauro Gallegati

Polytechnic University of Marche - Faculty of Economics ( email )

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

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