Credit Money and Macroeconomic Instability in the Agent-based Model and Simulator Eurace

By Silvano Cincotti, Marco Raberto, Andrea Teglio. 2010

216 citations recorded by the source corpus.

Abstract This paper investigates the interplay between monetary aggregates and the dynamics and variability of output and prices by considering both the money supplied by commercial banks as credit to firms and the fiat money created by the central bank through the quantitative easing monetary policy. The authors address this problem by means of an agent-based model and simulator, called Eurace, which is characterized by a complete set of interrelated markets and different types of interacting agents, modeled according to a rigorous balance-sheet approach. The dynamics of credit money is endogenous and depends on the supply of credit from the banking system, which is constrained by its equity base, and the demand of credit from firms in order to finance their production activity. Alternative dynamic paths for credit money have been produced by setting different firms’ dividend policies. Results point out the strict dependence of output and prices dynamics on monetary aggregates, and show the emergence of endogenous business cycles which are mainly due to the interplay between the real economic activity and its financing through the credit market. In particular, the amplitude of the business cycles strongly rises when the fraction of earnings paid out by firms as dividends is higher, that is when firms are more constrained to borrow credit money to fund their activity. This interesting evidence can be explained by the fact that the level of firms leverage, defined as the debt-equity ratio, can be considered ad a proxy of the likelihood of bankruptcy, an event which causes mass layoffs and supply decrease.

Subfields: Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/67eccb220f21bad001d37798639629e32308d85d

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Citations in the corpus

Post-Keynesian stock-flow-consistent modelling: a survey (2015, unknown): “Once the model was up and running (a threeyear process), they could analyse various issues such as quantitative easing impacts (Cincotti et al., 2010), debt deleveraging and business cycles (Raberto et al.”
Economic Forecasting with an Agent-Based Model (2020, methodology): “(2018) in Bielefeld as an offspring of the EURACE project, known as Eurace@Unibi; (4) the EURACE framework maintained by Cincotti et al. (2010) in Genoa; (5) the Java Agent based MacroEconomic Laboratory developed by Seppecher, Salle, and Lavoie (2018); (6) the family of models developed by Dosi et ”
More is different ... and complex! the case for agent-based macroeconomics (2019, background): “From the policy side they conclude that Central Bank should keep on controlling the short-term interest rate (see also Curdia and Woodford, 2015). In the model of Gertler and Karadi (2011), households can randomly become workers or bankers. In the latter case, they provide credit to firms, but as th”
Macroeconomic Policy in DSGE and Agent-Based Models (2012, unknown): “Somewhat similarly, Dosi et al. (2012) find that in the bank-augmented K+S model, higher loan-to-value ratios positively affect macroeconomic growth when firms can rely less on internal funds. Finally, employing the EURACE model, Raberto et al. (2011) find that lower capital-adequacy ratios can spur”
Stock-Flow Consistent Macroeconomic Models: A Survey (2017, unknown): “Cincotti, Raberto, and Teglio (2010) use the EURACE model to study the business cycle and show that when firms pay a higher fraction of their earnings as dividends, the amplitude of the business cycle increases because they compensate for the lower retained earnings with more borrowing and leverage.”
A Third Wave in the Economics of Climate Change (2015, background): “…cycles and financial dynamics (Thurner et al. 2012; Aymanns and Farmer 2015), credit regulation policies (Poledna et al. 2014), endogenous business cycles (Cincotti et al. 2010; Raberto et al. 2012) and macroeconomic policy (Deissenberg et al. 2008; Holcombe et al. 2013; Dawid et al. 2009).”
Agent based-stock flow consistent macroeconomics: Towards a benchmark model (2016, background): “This limit definitively hinders, and in some cases impedes, the possibility of studying phenomena which are deeply connected to agents’ heterogeneity and agents’ disperse interaction, such as self-organization processes within markets or industries, and the generation of financial bubbles, To our kn”