taming macroeconomic instability monetary and macro prudential policy interactions in an agent based model abstract we develop an agent based model to study the macroeconomic impact of alternative macro prudential regulations and their possible interactions with different monetary policy rules the aim is to shed light on the most appropriate policy mix to achieve the resilience of the banking sector and foster macroeconomic stability simulation results show that a triple mandate taylor rule focused on output gap inflation and credit growth and a basel iii prudential regulation is the best policy mix to improve the stability of the banking sector and smooth output fluctuations moreover we consider the different levers of basel iii and their combinations we find that minimum capital requirements and counter cyclical capital buffers allow to achieve results close to the basel iii first best with a much more simplified regulatory framework finally the components of basel iii are non additive the inclusion of an additional lever does not always improve the performance of the macro prudential regulation

network models and financial stability abstract systemic risk is a key concern for central banks charged with safeguarding overall financial stability in this paper we investigate how systemic risk is affected by the structure of the financial system we construct banking systems that are composed of a number of banks that are connected by interbank linkages we then vary the key parameters that define the structure of the financial system including its level of capitalisation the degree to which banks are connected the size of interbank exposures and the degree of concentration of the system and analyse the influence of these parameters on the likelihood of knock on defaults first we find that the better capitalised banks are the more resilient is the banking system against contagious defaults and this effect is non linear second the effect of the degree of connectivity is non monotonic i e initially a small increase in connectivity increases the contagion effect but after a certain threshold value connectivity improves the ability of a banking system to absorb shocks third the size of interbank liabilities tends to increase the risk of knock on default even if banks hold capital against such exposures fourth more concentrated banking systems are shown to be prone to larger systemic risk all else equal in an extension to the main analysis we study how liquidity effects interact with banking structure to produce a greater chance of systemic breakdown we finally consider how the risk of contagion might depend on the degree of asymmetry tiering inherent in the structure of the banking system a number of our results have important implications for public policy which this paper also draws out

surveys in public sector economics part i public sector production 2 shadow pricing in the public sector peter hammond professor of economics stanford university 3 regulation of public utilities and nationalized industries ingo vogelsang professor of economics boston university 4 economics of publicly provided goods and services paul hare professor of economics heriot watt university part ii distribution and welfare 5 the political economy of fiscal policy daniel ingberman and robert inman respectively assistant professor of public policy and management wharton school university of pennsylvania and professor of finance economics and public management university of pennsylvania 6 policy targetting in a new welfare framework with poverty john beath geoff lewis and david ulph both john beath and geoff lewis are lecturers in economics bristol university david ulph is professor of economics bristol university 7 the structure of income and commodity taxation christopher heady lecturer in economics university college london part iii estimation and computation 8 econometric issues in public sector economics richard blundell director of the institute for fiscal studies 9 general equilibrium computation applied to public sector issues john piggot professor of economics university of sydney with appendix by jon fuller

rational heuristics expectations and behaviors in evolving economies with heterogeneous interacting agents we analyze the individual and macroeconomic impacts of heterogeneous expectations and action rules within an agent based model populated by heterogeneous interacting firms agents have to cope with a complex evolving economy characterized by deep uncertainty resulting from technical change imperfect information coordination hurdles and structural breaks in these circumstances we find that neither individual nor macroeconomic dynamics improve when agents replace myopic expectations with less naive learning rules our results suggest that fast and frugal robust heuristics may not be a second best option but rather rational responses in complex and changing macroeconomic environments jel c63 d8 e32 e6 o4

price dynamics financial fragility and aggregate volatility within a standard framework a la arrow debreu we investigate the dynamics emerging from the interactions of heterogeneous households and firms that are adaptive price setters and financially constrained we show that depending on the stringency of the financial constraints the model can settle in two very different regimes one characterized by equilibrium the other by disequilibrium and financial fragility we then investigate how the structure of the production network affects the emergence of aggregate volatility from micro level price and financial shocks hence providing a dynamical counterpart to recent results of acemoglu and al 2012

managerial overconfidence in initial public offering decisions and its impact on macrodynamics and financial stability analysis using an agent based model abstract in this study we build a macroeconomic agent based model that is calibrated for the specific case of poland to explore whether the overconfidence of top corporate managers in the context of their initial public offering ipo decisions is detrimental for the firms being managed in this way the financial market dynamics and the selected macroeconomic indicators we found a contradiction between the micro and macro impacts of overconfidence overconfident firms showed better performance in terms of output than other firms but were also more exposed to stock market volatility thereby making them more likely to default the higher default rates of overoptimistic firms negatively impacted the banking sector and increased financial instability finally we ran policy shocks and showed that increased financial instability can be offset by strengthening the regulation of the banking sector

trade credit bank lending and monetary policy transmission this paper investigates the role of trade credit in the transmission of monetary policy most models of the transmission mechanism allow the firm to access only financial markets or bank lending according to some net worth criterion in our model we introduce trade credit as an additional source of funding we predict that when monetary policy tightens there will be a reduction in market and bank lending and an increase in trade credit this is confirmed with an empirical investigation of 16 000 manufacturing firms

sulfur dioxide control by electric utilities what are the gains from trade title iv of the 1990 clean air act amendments caaa established a market for transferable sulfur dioxide so2 emission allowances among electric utilities this market offers firms facing high marginal abatement costs the opportunity to purchase the right to emit so2 from firms with lower costs and this is expected to yield cost savings compared to a command and control approach to environmental regulation this paper uses econometrically estimated marginal abatement cost functions for power plants affected by title iv of the caaa to evaluate the performance of the so2 allowance market specifically we investigate whether the much heralded fall in the cost of abating so2 compared to original estimates can be attributed to allowance trading we demonstrate that for plants that use low sulfur coal to reduce so2 emissions technical change and the fall in prices of low sulfur coal have lowered marginal abatement cost curves by over 50 percent since 1985 the flexibility to take advantage of these chan

the myth or folly of the 3 deficit gdp maastricht parameter a relation is presented defining the boundary algebraically and geometrically to the sustainability area of public finance the relation and area involve three magnitudes deficit gdp debt gdp and rate of growth it is shown that the parameters stated in the famous annex to the maastricht treaty 60 percent for the debt gdp ratio and 3 percent for the deficit gdp ratio represent only one particular point on the above mentioned boundary relation to the sustainability area there exists an infinite number of other points sharing the same characteristics on the basis of the oecd data referring to the end of 1996 it is shown that all major european countries find themselves outside the sustainability area except belgium and italy i e exactly the opposite of what is widely believed to be the case in current discussions copyright 1998 by oxford university press

a three gap model of foreign transfers and the gdp growth rate in developing countries abstract a simplified macroeconomic framework is developed for the fiscal gap which is considered to be an important stumbling block for adjustment with growth in highly indebted developing countries distinctive characteristics of a fiscally constrained economy are compared with those of economies constrained either by the availability of savings or foreign exchange tentative implications for external conditionality accompanying debt relief measures are derived

fiscal policy and business cycle characteristics in a heterogeneous agent macro model abstract this paper explores the macroeconomic implications of changing fiscal policy in a heterogeneous interacting agent hia model the key contributions to the existing hia complex adaptive trivial system cats literature include the addition of a progressive income tax structure an expanded role for redistribution and a stylized reactive government sector in certain specifications deficit financed tax cuts are shown to effectively shorten recessions while deficit financed spending stimulus is able to lengthen recoveries alternative specifications provide ambiguous support for generalizing the effectiveness of these policy treatments robustness checks support the general findings that increased redistribution towards the unemployed results in higher unemployment rates greater inequality and shorter contractions

the case for gdp indexed bonds gds indexed bonds this paper seeks to revive the case for countries to insure against economic growth slowdowns by issuing bonds indexed to the rate of growth of gdp we show that gdp indexed bonds could provide substantial benefits in reducing the likelihood of default crises and allowing countries to avoid pro cyclical fiscal policies we simulate the effects of gdp indexed bonds under different assumptions about fiscal policy reaction functions and their output effects and find that they could substantially reduce the likelihood of debt gdp paths becoming explosive the insurance premium would likely be small because cross country comovement of gdp growth rates is low and cross country gdp growth risk is thus largely diversifiable for an investor holding a portfolio of gdp indexed bonds potential obstacles to the emergence of a market for these bonds include the verifiability of gdp data the trade off between insurance and moral hazard and the need for liquidity theory and past experience suggest that financial innovation often requires official intervention and its timing and form are difficult to predict we discuss institutional fixes and suggest an approach for attempting to start up a market eduardo borensztein and paolo mauro

the effects of interbank networks on efficiency and stability in a macroeconomic agent based model we develop a macroeconomic agent based model that consists of firms banks unions and households who interact on labour goods credit and interbank markets the model endogenises pricing decisions by firms wage setting by unions and interest rate setting by banks on both firm and interbank lending banks also set leverage targets and precautionary liquidity buffers on the basis of internal risk models our model produces endogenous fluctuations driven by the pricing behaviour of firms and the wage setting behaviour of unions fluctuations lead to loan defaults which are exacerbated as lenders reduce lending and charge higher interest rates inducing a credit crunch we also study how making the inter banking network more connected affects the key outcomes of the economy and find that while the flow of funds from surplus banks to firms can be increased the latter effect is soon dominated by increasing instability in the real sector as firms default at higher rates while the banking sector experiences fewer defaults as a whole losses on the interbank market increase as a source of bank defaults

fiscal and monetary policies in complex evolving economies what is the most appropriate combination of fiscal and monetary policies in economies subject to banking crises and deep recessions we study this issue using an agent based model that is able to reproduce a wide array of macro and micro empirical regularities simulation results suggest that policy mixes associating unconstrained counter cyclical fiscal policy and monetary policy targeting employment is required to stabilise the economy we also show that discipline guided fiscal rules can be self defeating as they depress the economy without improving public finances finally we find that the effects of monetary and fiscal policies become sharper as the level of income inequality increases

diffusion of a new product under network effects the us dvd market we formulate a model that captures the inter dependence between hardware demand and software supply indirect network effect in the dvd industry the identification of the network effect comes from the difference in software availability across two different formats vhs and dvd we find that a 1 increase in the number of dvd titles raises the demand for dvd players by 0 87 simultaneously a 1 increase in video player ownership leads to a 0 14 increase in the variety of video titles our simulations show that hardware manufacturers might be able to internalize the network externality to increase total industry revenues

financial fragility and distress propagation in a network of regions we investigate how the financial fragility in the real economy is affected by the average level of interdependence among agents across different regions of the economy to this end we develop a parsimonious agent based model of firms and banks organized in geographic regions the model is built on the framework of an existing class of models for business fluctuations the goal of our exercise is to clarify the effect on systemic failures of the interplay between network interconnectedness and financial acceleration in particular we investigate the probability of individual and systemic failures with varying levels of interconnectedness we find that in the absence of financial acceleration connectivity makes the system more resilient in contrast in the presence of financial acceleration the probability of both individual and systemic failures are minimized at intermediate level of diversification

on the sustainability of external debt is debt relief enough elaborating on pasinetti 1998 the geometry of debt sustainability gds represents an analytical tool for the analysis of the long term sustainability of foreign debt the paper focuses on debt sustainability in low income countries which face several major challenges simultaneously achieving economic growth consolidating human development goals and meeting regular debt service payments the gds reveals how the structural aspect of debt sustainability as indicated by trends in the non interest current account is closely interlinked with sustainability from a financial point of view as indicated by the relationship between the growth and the interest rate the gds shows why both debt cancellation and additional aid are necessary to give indebted low income economies a chance to improve their long term economic viability

key sectors in input output production networks an application to brexit this paper presents the first detailed and holistic description of the european production network epn and provides different rankings of the most systemically important industries involved in brexit employing techniques of complex networks analysis and input output traditional tools the study identifies those industries that are key in the complex structure of the uk eu trade relationships the method developed would help policy makers to better understand which tariff would have a more distortive impact which export sector should be pushed which imports should be safeguarded such information may have foremost importance in the negotiations between the uk and eu our findings suggest that brexit would be not just a problem for the uk as it is often portrayed but any form of brexit could propagate affecting the global production system further by inspecting industries centrality within the epn we find that the uk could be less exposed to trade barriers than eu countries

privatisation and liberalisation in an industry with network externalities abstract network externalities and sunk costs can make a profit maximising monopoly superior to competition even if a large number of firms can enter competition can outperform a public monopoly only if sunk costs become significantly lower

bank linkages and international trade abstract we uncover a new channel through which international finance is related to trade the formation of international bank linkages increases exports bank linkages are measured for each pair of countries in each year as a number of bank pairs in these two countries that are connected through cross border syndicated lending using a gravity approach to model trade for 66 countries over 24 years with a full set of fixed effects source year target year source target we find that new connections between banks in a given country pair lead to an increase in trade flows between these countries in the following year and to trade diversions from countries competing for similar imports we conjecture that the mechanism for this effect is the role bank linkages play in reducing export risk and present evidence supporting this conjecture in particular using industry level trade data and controlling for country pair year and industry fixed effects we find that new bank linkages have larger impacts on trade in industries which tend to be subject to more export risk for u s banks we can show that bank linkages are positively associated with foreign letter of credit exposures

competing technologies the learning curve and rational expectations abstract the problem of choice between several variants of a technology subject to dynamic learning economies is examined in a rational expectations model with overlapping adopters it is shown that even with rational expectations the long term market outcome depends sensitively on the pattern of early chance events and that only one variant of the technology will come to dominate the market in the long run this variant need not be the one which is socially optimal or most promising technically

towards a credit network based early warning indicator for crises this paper presents an agent based model which underlines the importance of credit network and leverage dynamics in determining the resilience of the system defining an early warning indicator for crises the model reproduces macroeconomic dynamics emerging from the interactions of heterogeneous banks and firms in an endogenous credit network banks and firms are linked through multiple credit relations which derive from individual target leverage choices agents choose the more convenient leverage level according to a basic reinforcement learning algorithm simulations are calibrated on balance sheet data of banks and firms quoted in the japanese stock exchange markets from 1980 to 2012

measuring the covariance risk of consumer debt portfolios abstract the covariance risk of consumer loans is difficult to measure due to high heterogeneity using the chilean household finance survey i simulate the default conditions of heterogeneous households over distinct macro scenarios i show that consumer loans have a high covariance beta relative to the stock market and bank assets banks loan portfolios have very different covariance betas with some banks being prone to high risk during recessions high income and older households have lower betas and help diversify banks portfolios households covariance risk increases the probability of being rejected for credit and has a negative impact on loan amounts

trade credit and the bank lending channel the bank lending channel theory posits that during monetary contractions banks restrict some firms loans thus reducing their desired investment independently of interest rates previous research finds small firms reduce while large firms accelerate loan growth we find that small firms increase trade credit a substitute credit indicating a strong loan demand it supports the bank lending channel they do not voluntarily cut bank loans since they increase a less desirable alternative using trade credit is propitious since unlike commercial paper investigated by previous researchers it is widely used by the small firms suffering the loan decline surprisingly we also find large firms increase trade credit a puzzle since they are typically assumed to have wide access to other credit using individual manufacturing firm data we find the reasons large firms use trade credit are financial in nature those without a bond rating increase trade credit that is without access to open market credit as relatively few firms have this mark of quality it implies that more firms are affected by credit constraints than previously believed

business fluctuations in a behavioral switching model gridlock effects and credit crunch phenomena in financial networks abstract in this paper we characterize the evolution over time of a credit network in the most general terms as a system of interacting banks and firms operating in a three sector economy with goods credit and interbank market credit connections change over time via an evolving fitness measure depending from lenders supply of liquidity and borrowers demand of credit moreover an endogenous learning mechanism allows agents to switch between a loyal or a shopping around strategy according to their degree of satisfaction the crucial question we investigate is how financial bubbles and credit crunch phenomena emerge from the implemented mechanism

are output growth rate distributions fat tailed some evidence from oecd countries this work explores some distributional properties of aggregate output growth rate time series we show that in the majority of oecd countries output growth rate distributions are well approximated by symmetric exponential power densities with tails much fatter than those of a gaussian fat tails robustly emerge in output growth rates independently of i the way we measure aggregate output ii the family of densities employed in the estimation iii the length of time lags used to compute growth rates we also show that fat tails still characterize output growth rate distributions even after one washes away outliers autocorrelation and heteroscedasticity

inequality household debt and financial instability an agent based perspective abstract our paper contributes to the literature on the causes of the 2007 2008 financial crisis in the united states by means of an agent based model we replicate an artificial credit network economy in order to assess the impact of growing income inequality in the presence of peer effects and home equity borrowing we show that the resulting debt financed consumption boom jeopardises the stability of the economic system thus paving the way for a financial crisis our model includes a behavioural rule for consumption based on expenditure cascades a hierarchical structure of household finance an articulated credit market with collateralised consumption loans and mortgages and a simple housing market results show that the model is able to capture the economic and social pressure of inequality on low and middle income households that pushes them to increase their consumption via home equity extraction rising non performing loans lead to higher bad debt on the banks balance sheets and consequently to the emergence of a crisis as an endogenous dynamic

income distribution credit and fiscal policies in an agent based keynesian model this work studies the interactions between income distribution and monetary and fiscal policies in terms of ensuing dynamics of macro variables gdp growth unemployment etc on the grounds of an agent based keynesian model the direct ancestor of this work is the keynes meeting schumpeter formalism presented in dosi et al 2010 to that model we add a banking sector and a monetary authority setting interest rates and credit lending conditions the model combines keynesian mechanisms of demand generation a schumpeterian innovation fueled process of growth and minskian credit dynamics the robustness of the model is checked against its capability to jointly account for a large set of empirical regularities both at the micro level and at the macro one the model is able to catch salient features underlying the current as well as previous recessions the impact of financial factors and the role in them of income distribution we find that different income distribution regimes heavily affect macroeconomic performance more unequal economies are exposed to more severe business cycles fluctuations higher unemployment rates and higher probability of crises on the policy side fiscal policies do not only dampen business cycles reduce unemployment and the likelihood of experiencing a huge crisis in some circumstances they also affect positively long term growth further the more income distribution is skewed toward profits the greater the effects of fiscal policies about monetary policy we find a strong non linearity in the way interest rates affect macroeconomic dynamics in one regime with low rates changes in interest rates are ineffective up to a threshold beyond which increasing the interest rate implies smaller output growth rates and larger output volatility unemployment and likelihood of crises

a new approach to business fluctuations heterogeneous interacting agents scaling laws and financial fragility abstract in this paper we discuss a scaling approach to business fluctuations our starting point consists in recognizing that concepts and methods derived from physics have allowed economists to re discover a set of stylized facts which have to be satisfactorily accounted for in their models standard macroeconomics based on a reductionist approach centered on the representative agent is definitely badly equipped for this task on the contrary we show that a simple financial fragility agent based model based on complex interactions of heterogeneous agents is able to replicate a large number of scaling type stylized facts with a remarkable high degree of statistical precision

why are distributions of firm growth rates tent shaped abstract recent empirical analyses on different datasets have revealed a common exponential behavior in the shape of the probability density of the corporate growth rates we present new evidence on this topic from the italian manufacturing industry and propose a very simple mechanism that under rather general assumptions provides a robust explanation for the observed regularities

how to evaluate the solvency of an indebted nation reassessing third world debt daniel cohen the conventional measures of the solvency of developing countries usually rely on such indices as debt export or debt gnp ratios the underlying rationale is that to be solvent a country must eventually pay back all its debt this paper starts from two simple but important remarks first solvency need not require the full eventual repayment of all debt continued borrowing may be possible rather what is required is that a country s debt accumulation does not outstrip its capacity to make future repayments and the capacity of lenders to make future loans second solvency therefore cannot be defined independently of the growth rates of lender and borrower countries nor of the interest rate at which past debts accumulate putting these ideas together a new solvency index is proposed and this is computed for all the less developed countries this new index suggests a less gloomy view of the international debt crisis the largest debtors may have already accomplished an adjustment which is more than sufficient to restore their solvency when this is properly computed to investigate this claim there is a detailed analysis of the policies recently adopted in argentina and brazil

speeding up the internet regulation and investment in european fiber optic infrastructure in this paper we study how the coexistence of access regulations for legacy copper and fiber networks shapes the incentives to invest in network infrastructure to this end we develop a theoretical model explaining investment incentives by incumbent telecom operators and heterogeneous entrants and test its main predictions using panel data from 27 eu member states over the last decade our theoretical model extends the existing literature by among other things allowing for heterogeneous entrants in internet access markets as we consider both other telecom and cable tv operators as entrants in the empirical part we use a novel data set including information on physical fiber network investments legacy network access regulation and recently imposed fiber access regulations our main finding is that more stringent access regulations for both the legacy and the fiber networks harm investments by incumbent telecom operators but in line with our theoretical model do not affect cable tv operators

coordinating adoption decisions under externalities and incomplete information abstract a monopolist sells a good whose value depends on the number of buyers who adopt it as well as on their private types the seller coordinates the buyers adoption decisions based on their reported types and charges them the price based on the number of adoptions we study ex post implementable sales schemes that are collusion proof and show that under the revenue maximizing scheme more buyer types are willing to adopt when there are more adoptions and the number of adoptions is maximized subject to the participation constraints

winter is possibly not coming mitigating financial instability in an agent based model with interbank market abstract we develop a macroeconomic agent based model to study how financial instability can emerge from the co evolution of interbank and credit markets and the policy responses to mitigate its impact on the real economy the model is populated by heterogenous firms consumers and banks that locally interact in different markets in particular banks provide credit to firms according to a basel ii or iii macro prudential frameworks and manage their liquidity in the interbank market the central bank performs monetary policy according to different types of taylor rules we find that the model endogenously generates market freezes in the interbank market which interact with the financial accelerator possibly leading to firm bankruptcies banking crises and the emergence of deep downturns this requires the timely intervention of the central bank as a liquidity lender of last resort moreover we find that the joint adoption of a three mandate taylor rule tackling credit growth and the basel iii macro prudential framework is the best policy mix to stabilize financial and real economic dynamics however as the liquidity coverage ratio spurs financial instability by increasing the pro cyclicality of banks liquid reserves a new counter cyclical liquidity buffer should be added to basel iii to improve its performance further finally we find that the central bank can also dampen financial instability by employing a new unconventional monetary policy tool involving active management of the interest rate corridor in the interbank market

the financial accelerator in an evolving credit network we model a credit network characterized by credit relationships connecting i downstream d and upstream u firms and ii firms and banks the net worth of d firms is the driver of fluctuations the production of d firms and of their suppliers u firms in fact is constrained by the availability of internal finance proxied by net worth to the d firms the structure of credit interlinkages changes over time due to an endogeneous process of partner selection which leads to the polarization of the network at the aggregate level the distribution of growth rates exhibits negative skewness and excess kurtosis when a shock hits the macroeconomy or a significant group of agents in the credit network a bankruptcy avalanche can follow if agents leverage is critically high in a nutshell we want to explore the properties of a network based financial accelerator

minsky models a structured survey minsky s ideas have recently gained prominence in the mainstream as well as in the heterodox literature however there exists no agreement upon the formal presentation of minsky s insights the aim of this paper is to survey the literature and identify differences and similarities in the ways through which minskyan ideas have been formalised we distinguish between the models that focus on the dynamics of debt or interest with no or a secondary role for asset prices and the models in which asset prices play a key role in the dynamic behaviour of the economy within the first category of models we make a classification between i the kalecki minsky models ii the kaldor minsky models iii the goodwin minsky models iv the credit rationing minsky models v the endogenous target debt ratio models and vi the minsky veblen models within the second category of models we distinguish between i the equity price minsky models and ii the real estate price minsky models key limitations of the models and directions for future research are outlined

the price effects of monetary shocks in a network economy abstract empirical evidence shows monetary shocks have two temporary effects on the distribution of prices one the dispersion of cross section of prices increases in response to monetary shocks two some prices change in the wrong direction some prices decrease in response to positive monetary shocks and increase in response to negative monetary shocks we present a model that generates the two effects of monetary shocks on the distribution of prices as an out of equilibrium phenomena firms are related to each other through a production network monetary shocks change the working capital of a subset of firms and percolate to other firms through buyer seller linkages price dispersion increases because the percolation of a monetary shock through the production network causes prices to differentially deviate from their steady state values some prices change in the wrong direction because a shift in one firm s demand causes a shift in another firm s supply and vice versa thereby generating complicated chains of bi directional price changes monetary shocks can significantly disturb relative prices even when all prices are fully flexible

credit chains and bankruptcy propagation in production networks abstract we present a simple model of a production network in which firms are linked by supplier customer relationships involving extension of trade credit our aim is to identify the minimal set of mechanisms which reproduce qualitatively the main stylized facts of industrial demography such as firms size distribution and at the same time the correlation over time and across firms of output growth and bankruptcies the behavior of aggregate variables can be traced back to the direct firm firm interdependence in this paper we assume that the number of firms is constant and the network has a periodic static structure but the framework allows further extensions to investigate which network structures are more robust against domino effects and if the network is let to evolve in time which structures emerge spontaneously depending on the individual strategies for orders and delivery

deleveraging crises and deep recessions a behavioural approach macroeconomic dynamics are characterized by alternating patterns of periods of relative stability and large swings standard micro founded macro economic models account for these patterns through exogenous and persistent shocks in this paper we develop a fully decentralized and micro founded macro economic agent based model augmented with an opinion model which produces endogenous waves of pessimism and optimism that feed back into firms leverage and households precautionary saving behaviour a major emergent property of our model is precisely the complex successions of stable and unstable macro economic regimes the model is further able to account for a wide spectrum of macro and micro empirical regularities within this framework we analyse a series of macro economic phenomena of key relevance in the current macro economic debate especially the occurrence of deleveraging crises and fisherian debt deflation recessions our analysis suggests that the relative dynamics of prices and wages and the resulting income distribution along a deflation ary path are critical determinants of the severity of the recession and the chances of recovery

leveraged network based financial accelerator abstract in this paper we build on the network based financial accelerator model of delli gatti et al 2010 modelling the firms financial structure following the dynamic trade off theory instead of the packing order theory moreover we allow for multiperiodal debt structure and consider multiple bank firm links based on a myopic preferred partner choice in case of default we also consider the loss given default rate lgdr we find many results i if leverage increases the economy is riskier ii a higher leverage pro cyclicality has a destabilizing effect iii a pro cyclical leverage weakens the monetary policy effect iv a central bank that wants to increase the interest rate should previously check if the banking system is well capitalized v an increase of the reserve coefficient has an impact similar to that produced by raising the policy rate but for the enlargement of bank reserves that improves the resilience of the banking system to shocks

agent based stock flow consistent macroeconomics towards a benchmark model abstract the paper moves from a discussion of the challenges posed by the crisis to standard macroeconomics and the solutions adopted within the dsge community although several recent improvements have enhanced the realism of standard models we argue that major drawbacks still undermine their reliability in particular dsge models still fail to recognize the complex adaptive nature of economic systems and the implications of money endogeneity the paper argues that a coherent and exhaustive representation of the inter linkages between the real and financial sides of the economy should be a pivotal feature of every macroeconomic model and proposes a macroeconomic framework based on the combination of the agent based and stock flow consistent approaches the papers aims at contributing to the nascent ab sfc literature under two fundamental respects first we develop a fully decentralized ab sfc model with several innovative features and we thoroughly validate it in order to check whether the model is a good candidate for policy analysis applications results suggest that the properties of the model match many empirical regularities ranking among the best performers in the related literature and that these properties are robust across different parameterizations second the paper has also a methodological purpose in that we try to provide a set or rules and tools to build calibrate validate and display ab sfc models

the economics of convention c onventions regulate much of economic and social life yet they have received surprisingly little attention from economists by a convention we mean a pattern of behavior that is customary expected and self enforcing everyone conforms everyone expects others to conform and everyone has good reason to conform because conforming is in each person s best interest when everyone else plans to conform lewis 1969 familiar examples include following rules of the road adhering to conventional codes of dress and using words with their conventional meanings conventions with direct economic implications include species of money and credit industrial and technological standards accounting rules and forms of economic contracts indeed it would scarcely be an exaggeration to say that almost all economic and social institutions are governed to some extent by convention the main feature of a convention is that out of a host of conceivable choices only one is actually used this fact also explains why conventions are needed they resolve problems of indeterminacy in interactions that have multiple equilibria indeed from a formal point of view we may define a convention as an equilibrium that everyone expects in interactions that have more than one equilibrium the economic significance of conventions is that they reduce transaction costs imagine the inconvenience if whenever two vehicles approached one another the important exceptions are sugden 1986 and ullman margalit 1977 the interested reader might also refer to the symposium on social norms that appeared in the fall 1989 issue of this journal with articles by sugden 1989 and elster 1989

the agent based approach to post keynesian macro modeling the paper presents a survey of post keynesian pk agent based ab models and ab models with pk features it is argued that ab modeling is fully consistent with the pk approach and that the cross fertilization can benefit both areas of research the survey focuses on how the various models have faced the issues implied by adopting a bottom up approach in a traditionally aggregative structure and highlights the additional insights coming from this modeling strategy particular attention is devoted to stock flow consistent ab models for theivvr potential in defining a new benchmark for this type of research

toward a new microfounded macroeconomics in the wake of the crisis the great recession that followed the financial crisis of 2007 is not only the largest economic crisis after the great depression of the 1930s it also signals a crisis of economics as a discipline this is not only the consequence of the inadequacy of mainstream macroeconomics and specifically the dynamic stochastic general equilibrium dsge workhorse model to forecast such a huge event or at least to detect the worrying tendencies towards it even more relevant is the choice to explicitly avoid the modeling of large crises that for someone is a motivation for not attacking pre crisis dsge models focused on the analysis of small deviations from the steady state so denying the intrinsic nature of capitalism a system that necessarily proceeds through cycles and extended crises the replies of the dsge approach to critics have led to extensions regarding for instance the role of financial frictions heterogeneous agents and bounded rationality though typically in the form of quasi rational expectations the alternative paradigm of agent based ab macroeconomics can take into account all these elements at once within an evolutionary modeling framework based on heterogeneity and interaction so capable to endogenously reproduce complex dynamics from small fluctuations to large crises due to innovation and industrial dynamics rising inequality and financial instability and so on the integration between ab macroeconomics and the post keynesian stock flow consistent approach represents a promising way for the future development of this research field

between scylla and charybdis income distribution consumer credit and business cycles we introduce a macroeconomic model with heterogeneous households and an aggregate banking sector in order to analyze the impact of rising income inequality under different credit scenarios growing inequality produces debt led consumption boom dynamics when the banking sector is characterized by a lower capital requirement and a higher willingness to lend instead when inequality rises but the banking sector is highly regulated aggregate demand and output fall our results also yield new insights on the appropriate fiscal policy reaction to stabilize the economy acting on the progressivity of the tax system seems more effective than a proactive countercyclical fiscal policy jel c63 d31 e62 g01

the sustainable development consequences of imf debt vs capital control comparing progress in gpi and gdp terms for korea and malaysia abstract the panic wrought by the 1997 asian financial crisis spurred different mitigative measures some states assented to imf bailout and restructuring while others enforced capital control since then despite intense academic and regulatory scrutiny of the nuances of the recession empiric focus on recovery trajectory of affected countries centred chiefly around traditional gdp metrics an approach that disregards economic performance in a manner congruent with sustainable development goals sdg in this paper we adopt a broader sdg compatible approach by tracking two affected countries korea and malaysia recovery via operationalizing an alternative growth indicator gpi genuine progress indicator first we construct a 35 year long gpi index from 1980 to 2014 and employ the solow growth model to measure the impact of the two remedial measures on gdp and gpi of both countries employing an ardl approach we find external debt to impact significantly the gdp and gpi of korea meanwhile for malaysia the controversial capital control failed to register significant impact moreover unemployment rates trade openness fixed capital formation and the history of previous crises are found to be influential determinants of gdp and gpi with credit and exchange rate variables showing ambiguous results

the dynamics of leverage in a demand driven model with heterogeneous firms abstract this paper introduces heterogeneous microeconomic behavior into a demand driven macroeconomic model in order to study the joint dynamics of leverage and capital accumulation by identifying the links between firm level variables and aggregate quantities the paper contributes toward a reformulation of the minskyan formal analysis that explicitly considers the role of microeconomic factors in generating macroeconomic instability the aggregation of heterogeneous agents is not only performed numerically as in traditional agent based models but also by means of an innovative analytical methodology originally developed in statistical mechanics and recently imported into macroeconomics the distinctive feature is in that the joint analysis of the numerical and analytical solutions of the model sheds light on the effects of financial fragility at the firm level on the dynamics of the macroeconomy in particular the analysis of steady state and stability properties of the system provide additional insights on the role of behavioral and size heterogeneity of firms for the stocks of aggregate debt and capital

minsky from the bottom up formalising the two price model of investment in a simple agent based framework abstract this paper presents a fully formalised version of hyman minsky s two price model of capital investment embedded in a macroeconomic model consisting of an agent based sector of consumption goods firms as well as three strongly simplified aggregated sectors in an innovation to the literature on minsky models the model is calibrated empirically using moments drawn from us data demonstrating that it is capable of producing plausible time series simulations show that the individual investment and financing choices made by the agent based firms lead to the emergence of business cycles at the aggregate level key aspects of the model can be closely related to central concepts from the financial accelerator literature and moreover it is demonstrated through simulation experiments that expectations and sentiment dynamics play an important role being able to amplify or dampen the cycles it is also shown that the introduction of fiscal policy monetary policy or a restriction on firm dividend payouts can contribute to a stabilisation of the model

short and medium term financial real cycles an empirical assessment 2019 elsevier ltd theories such as minsky s financial instability hypothesis or new keynesian financial accelerator models assign a key role to financial factors in business cycle dynamics we propose a simple var based estimation framework to examine some of the financial real interaction mechanisms that are at the core of these theories we examine cycle frequencies in seven oecd countries over the period 1970 2015 and find that output contains short and medium business cycle frequencies while interest rates business debt and household debt exhibit short medium and long cycles respectively we find robust evidence for financial real interaction mechanisms i at high frequencies between interest rates and gdp in australia and the usa and ii at medium frequencies between business debt and gdp in canada and great britain the effect of interest rates and debt seems to operate via investment rather than consumption we find no evidence for an interaction mechanism between household debt and gdp our results provide support for minskyan and financial accelerator models in which output interacts with interest rates or corporate debt