Long Term Impacts of Bank Behavior on Financial Stability An Agent Based Modeling Approach (1.0.0)
This paper presents an agent-based model aiming to shed light on the potential destabilizing effects of bank behavior. Our work takes its motivation from the effects of the financial crisis which erupted in 2007 in the US. It draws on the Financial Instability Hypothesis by Hyman P. Minsky, and on the Agent Based macro modeling literature (Delli Gatti et al. 2010, Riccetti et. al 2013) to model a simplified economy in which heterogeneous banks and firms interact on game theoretic rules. Simulation results suggest that aggregate financial instability may emerge as the outcome of banks’ attempt to increase their profit or market share through their pricing strategies. A further finding from the model is the need for banks to take into account time consistency when issuing credit in order to protect the financial stability of the system.
Release Notes
The base model version is uploaded. Models for other scenarios are not uploaded as they can be achieved with simple changes in the base model.
Associated Publications
The paper of this model is in progress for publishing in Journal of Artificial Societies and Social Simulation (JASSS).
Long Term Impacts of Bank Behavior on Financial Stability An Agent Based Modeling Approach 1.0.0
Submitted by
Ilker Arslan
Published Apr 08, 2019
Last modified Apr 08, 2019
This paper presents an agent-based model aiming to shed light on the potential destabilizing effects of bank behavior. Our work takes its motivation from the effects of the financial crisis which erupted in 2007 in the US. It draws on the Financial Instability Hypothesis by Hyman P. Minsky, and on the Agent Based macro modeling literature (Delli Gatti et al. 2010, Riccetti et. al 2013) to model a simplified economy in which heterogeneous banks and firms interact on game theoretic rules. Simulation results suggest that aggregate financial instability may emerge as the outcome of banks’ attempt to increase their profit or market share through their pricing strategies. A further finding from the model is the need for banks to take into account time consistency when issuing credit in order to protect the financial stability of the system.
Release Notes
The base model version is uploaded. Models for other scenarios are not uploaded as they can be achieved with simple changes in the base model.