Debt Deleveraging and Business Cycles: An Agent-Based Perspective

Abstract

The recent financial crises pointed out the central role of public and private debt in modern economies. However, even if debt is a recurring topic in discussions about the current economic situation, economic modeling does not take into account debt as one of the crucial determinants of economic dynamics. The authors' contribution, in this paper, is to investigate the issues of borrowing and debt load by means of computational experiments, performed in the environment of the agent-based Eurace simulator. The authors aim to shed some light on the relation between debt and main economic indicators. Their results clearly confirm that the amount of credit in the economy is a very important variable, which can affect economic performance in a twofold way: fostering growth or pushing the economy into recession or crisis. The outcomes of their computational experiments show a rich scenario of interactions between real and financial variables in the economy, and therefore represent a truly innovative tool for the study of economics. Special Issue New Approaches in Quantitative Modeling of Financial MarketsJEL E2, E3, E44, E51

Stock‐flow Consistent Macroeconomic Models: A Survey

“…In a related study, Raberto et al . () examine the relation between debt and the macroeconomic performance of an economy. They show that the effect of debt on growth is not certain a priori : more debt can foster or inhibit growth, a result that echoes the debt‐led and debt‐burdened classifications of Taylor (, ch.…”

The Agent‐based Approach to Post Keynesian Macro‐modeling

“…The Eurace model (Raberto et al ., ) is a very articulated and large AB model which aims to replicate in detail the features of a real economy. The version presented in Raberto et al .…”

“…The version presented in Raberto et al . () consists of a goods production sector, a capital producing firm, a household sector, a banking sector, a government, and a central bank. The model presents some essential PK features, a demand‐driven goods market, a standard mark‐up pricing rule, and endogenous money, together with some significant departures from the typical PK model architecture, such as a Cobb–Douglas production function for firms in the consumption goods sector and the determination of investment on the basis of a cost‐minimizing approach.…”

“…However, Raberto et al . () can provide an example of how an SFC representation can to some extent discipline the construction of such a large model by limiting the number of modeling options.…”