Combining monetary policy and prudential regulation: an agent-based modeling approach

Alexandre, Michel; Lima, Gilberto Tadeu

doi:10.1007/s11403-017-0209-0

Cited by 26 publications

(19 citation statements)

References 49 publications

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“…6 The ACE model is programmed in Scala 2.12.4. Lima (2017) and somewhat more broadly also Salle et al (2013b,a) who analyze the credibility of central bank's inflation target announcements. 7 Endogeous money supply here means that the quantity of money is determined endogenously, i.e.…”

Section: Introductionmentioning

confidence: 99%

The interaction between monetary and macroprudential policy: should central banks ‘lean against the wind’ to foster macro-financial stability?

Krug

2018

Economics

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The extensive harm caused by the financial crisis raises the question of whether policymakers could have done more to prevent the build-up of financial imbalances. This paper aims to contribute to the field of regulatory impact assessment by taking up the revived debate on whether central banks should use the interest rate to directly respond to the build-up of financial sector imbalances, i.e. 'lean against the wind' or not. Currently, there is no consensus on whether monetary policy is, in general, able to support the resilience of the financial system or if this task should better be left to the macroprudential approach of financial regulation. The author aims to shed light on this issue by analyzing distinct policy regimes within an agent-based computational macro-model with endogenous money. He finds that policies that make use of their comparative advantage lead to superior outcomes concerning their respective intended objectives. In particular, he shows that 'leaning against the wind' should only serve as first line of defense in the absence of a prudential regulatory regime and that price stability does not necessarily mean financial stability. Moreover, macroprudential regulation as unburdened policy instrument is able to dampen the build-up of financial imbalances by restricting credit to the unsustainable high-leveraged part of the real economy.(Published in Special Issue Agent-based modelling and complexity economics) JEL E44 E50 G01 G28 C63

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Section: Introductionmentioning

confidence: 99%

The interaction between monetary and macroprudential policy: should central banks ‘lean against the wind’ to foster macro-financial stability?

Krug

2018

Economics

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“…Impact studies of macroprudential policies on the economy within the ABM approach is relatively new. However, the topic refers to the tradition of agent-based models within financial markets [73][74][75][76][77] as well as literature on credit and financial markets from the agent-based perspective [72,[78][79][80][81][82][83][84][85][86][87][88][89][90][91][92][93][94][95][96][97]. In the broader sense, the study also refers to the coevolution models successfully applied in [98,99] to explain the stylized fact of persistency in a time series.…”

Section: Comparison Of the Abm And Dsge-3d Modelmentioning

confidence: 99%

Macroprudential Policy in a Heterogeneous Environment—An Application of Agent-Based Approach in Systemic Risk Modelling

Kaszowska-Mojsa

Pipień

2020

Entropy

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Assessment of welfare effects of macroprudential policy seems the most important application of the Dynamic Stochastic General Equilibrium (DSGE) framework of macro-modelling. In particular, the DSGE-3D model, with three layers of default (3D), was developed and used by the European Systemic Risk Board and European Central Bank as a reference tool to formally model the financial cycle as well as to analyze effects of macroprudential policies. Despite the extreme importance of incorporating financial constraints in Real Business Cycle (RBC) models, the resulting DSGE-3D construct still embraces the representative agent idea, making serious analyses of diversity of economic entities impossible. In this paper, we present an alternative to DSGE modelling that seriously departs from the assumption of the representativeness of agents. Within an Agent Based Modelling (ABM) framework, we build an environment suitable for performing counterfactual simulations of the impact of macroprudential policy on the economy, financial system and society. We contribute to the existing literature by presenting an ABM model with broad insight into heterogeneity of agents. We show the stabilizing effects of macroprudential policies in the case of economic or financial distress.

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“…T he m ain m ethod in our research is agent-based com putational econom y (ACE) [13,29], w hich includes heterogeneity, bounded rationality, non-equilibrium dynam ics and direct interactions am ong econom ic agents [9]. A C E m odels are often used to study effects o f policies on m acroeconom ic and spatial dynam ics [4 ], and have already been im plem ented in different areas o f m acroeconom ic policy such as fiscal [2], m onetary [11,21], m acroprudential [1,3,19] and labor m arket policy [18,23,25].…”

Section: Literature Reviewmentioning

confidence: 99%

Simulating Budget System in the Agent Model of the Russian Federation Spatial Development

Mashkova

Novikova

Savina

et al. 2020

Communications in Computer and Information Science

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In this paper we present methods, data and algorithms for simulating budget system in the model of the Russian Federation spatial development. We show the place of this task in methodology of our research and give a brief overview of the background results. Key objects of the budget system in the model are the federal budget, regional budgets and extra budgetary funds: pension, medical and social insurance. We determine revenues and expenditures of the budgets and funds on the basis of federal laws, Budget and Tax codes of the Russian Federation. Since the exact reproduction of excise rates and customs duties is problematic due to model aggregation, we calculate model rates of excises and duties for selected sectors on the basis of retrospective data pre sented on the budget system portal and in the federal input-output table. Structure of the budget expenses in the model was simplified by aggregating expenditure items into major groups correlated with sectors of the economy. Presented algorithm of the budget system simulates interaction of the federal, regional budgets and extra-budgetary funds with agents and organizations in the model. For validation of the budget system algorithms in the model we conduct retrospective modeling for the federal budget and the budget of Belgorod region in 2014.

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Combining monetary policy and prudential regulation: an agent-based modeling approach

Cited by 26 publications

References 49 publications

The interaction between monetary and macroprudential policy: should central banks ‘lean against the wind’ to foster macro-financial stability?

The interaction between monetary and macroprudential policy: should central banks ‘lean against the wind’ to foster macro-financial stability?

Macroprudential Policy in a Heterogeneous Environment—An Application of Agent-Based Approach in Systemic Risk Modelling

Simulating Budget System in the Agent Model of the Russian Federation Spatial Development

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