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Journal of Economic Interaction and Coordination

Erschienen in:

26.07.2017 | Regular Article

Early warning indicators and macro-prudential policies: a credit network agent based model

verfasst von: Ermanno Catullo, Antonio Palestrini, Ruggero Grilli, Mauro Gallegati

Erschienen in: Journal of Economic Interaction and Coordination | Ausgabe 1/2018

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Abstract

Credit network configurations play a crucial role in determining the vulnerability of the economic system. Following the network-based financial accelerator approach, we constructed an agent based model reproducing an artificial credit network that evolves endogenously according to the leverage choices of heterogeneous firms and banks. Thus, our work aims at defining both early warning indicators for crises and policy precautionary measures based on the endogenous credit network dynamics. The model is calibrated on a sample of firms and banks quoted in the Japanese stock-exchange markets from 1980 to 2012. Both empirical and simulated data suggest that credit and connectivity variations could be used as early warning measures for crises. Moreover, targeting banks that are central in the credit network in terms of size and connectivity, the capital-related macro-prudential policies may reduce systemic vulnerability without affecting aggregate output.

Vorheriger Artikel A functional perspective on financial networks

Nächster Artikel Structural comparisons of networks and model-based detection of small-worldness

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According to Adrian et al. (2015), policy interventions which aim to limit the leverage ratio and the maximal exposure allowed, as well as to define countercyclical capital buffers, belong to the capital-related macroprudential tools class.

For the sake of clarity, we remind that we have defined the leverage \(\lambda _t=\frac{Total Assets}{Equity}\) as many others in literature (Adrian and Shin 2010; Aymanns et al. 2016), which corresponds exactly to the inverse of the Basel III leverage ratio, \(\frac{tier 1 capital}{Total Exposure}\).

We defined a dummy variable with values equal to one when output decrease is lower than \(-0.05\)%, else the other periods the dummy variable is equal to zero. This dummy variable is used as dependent variable in the panel logit regressions.

The connectivity measure we have considered is the average normalized degree, measured as the average number of connections—in our case lending agreements—of each firm divided by the maximum number of possible links, which corresponds to the total number of banks.

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Titel: Early warning indicators and macro-prudential policies: a credit network agent based model
verfasst von: Ermanno Catullo
Antonio Palestrini
Ruggero Grilli
Mauro Gallegati
Publikationsdatum: 26.07.2017
Verlag: Springer Berlin Heidelberg
Erschienen in: Journal of Economic Interaction and Coordination / Ausgabe 1/2018
Print ISSN: 1860-711X
Elektronische ISSN: 1860-7128
DOI: https://doi.org/10.1007/s11403-017-0199-y

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