Robust-less-fragile: Tackling Systemic Risk and Financial Contagion in a Macro Agent-Based Model - Sciences Po Access content directly
Preprints, Working Papers, ... (Working Paper) Year : 2024

Robust-less-fragile: Tackling Systemic Risk and Financial Contagion in a Macro Agent-Based Model

Abstract

We extend the Schumpeter meeting Keynes (K+S; see Dosi et al., 2010, 2013, 2015) to model the emergence and the dynamics of an interbank network in the money market. The extended model allows banks to directly exchange funds, while evaluating their interbank positions using a network-based clearing mechanism (NEVA, see Barucca et al., 2020). These novel adds on, allow us to better measure financial contagion and systemic risk events in the model and to study the possible interactions between micro-prudential and macro-prudential policies. We find that the model can replicate new stylized facts concerning the topology of the interbank network, as well as the dynamics of individual banks’ balance sheets. Policy results suggest that the economic system at large can benefit from the introduction of a micro-prudential regulation that takes into account the inter- bank network relationships. Such a policy decreases the incidence of systemic risk events and the bankruptcies of financial institutions. Moreover, a trade-off between financial stability and macroeconomic performance does not emerge in a two-pillar regulatory framework grounded on i) a Basel III macro-prudential regulation and ii) a NEVA-based micro-prudential policy. Indeed, the NEVA allows the economic system to achieve financial stability without overly stringent capital requirements.
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hal-04576530 , version 1 (15-05-2024)

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  • HAL Id : hal-04576530 , version 1

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Gianluca Pallante, Mattia Guerini, Mauro Napoletano, Andrea Roventini. Robust-less-fragile: Tackling Systemic Risk and Financial Contagion in a Macro Agent-Based Model. 2024. ⟨hal-04576530⟩
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