Luca Riccetti

FINANCIAL REGULATION AND ENDOGENOUS MACROECONOMIC CRISES

We explore the effects of banking regulation on financial stability and macroeconomic dynamics in an agent-based computational model. In particular, we study the minimum level of capital and the lending concentration towards a single counterpart. We show that an overly tight regulation is dangerous because it reduces credit availability. By contrast, overly loose constraints, associated with a high payout ratio, increase financial fragility that, in turn, damage the real economy. Simulation results support the introduction of regulatory rules aimed at assuring an adequate capitalization of banks, such as the Capital Conservation Buffer (Basel III reform).

Growing Inequality, Financial Fragility, and Macroeconomic Dynamics: An Agent Based Model

Our aim is to analyse the interplay between growing inequality and financial fragility in a complex macroeconomic system. In order to do this, we propose a macroeconomic microfounded framework with heterogeneous agents in which households, firms, and banks interact according to decentralised matching processes. The main result is that growing inequality leads to more macroeconomic volatility, increasing the likelihood of observing large unemployment crises.

Increasing Inequality and Financial Fragility in an An Agent Based Macroeconomic Model

The aim of this paper is to investigate the relationship between increasing inequality and financial fragility in an agent based macroeconomic model. We analyse the effects of a non-linear relationship between wealth and consumption on the evolution of the economic system. Preliminary results show that more inequality rises macroeconomic volatility, increasing the likelihood of observing large unemployment crises.

Intermediation Model, Bank Size and Lending to Customers: Is There a Significant Relationship? Evidence from Italy: 2008–2011

The global financial crisis started in 2007, the economic downturn which followed and, the effects of the sovereign debt crisis, caused a relevant slowdown in banks’ lending in Italy. As reported by the Bank of Italy (2008, 2009, 2010, 2011) banks’ lending to customers slowed down consistently between 2008 and 2011, in spite of a slight recovery registered in 2010. Although basically widespread, this phenomenon was more intense for the larger banks than for the smaller ones, mainly reflecting different funding constraints. In particular, large intermediaries generally faced more difficulties in wholesale funding on the interbank market, especially after the start of the global financial crisis in 2007 (Bank of Italy, 2008) and cause of the effects of the sovereign debt crisis (Bank of Italy, 2011; Albertazzi et al., 2012).

AD-AS Representation of Macroeconomic Emergent Properties

Abstract In this chapter, we show how to build the aggregate demand and supply curves from the bottom up in an agent-based macroeconomic model. We perform a computational exercise through which we calculate the notional quantity of individual demands and supplies corresponding to a set of different good prices introduced as a shock to the price emerging from the model simulation. By summing up the notional quantity at individual level, we obtain both the aggregate demand and supply. In this way, we provide a simple visualization of complex macroeconomic dynamics, similar to that proposed in the mainstream approach. Therefore, we can study the similarities and differences between the mainstream and the agent-based frameworks, trying to understand the role of heterogeneity and interaction in shaping aggregate curves and macroeconomic equilibria.

The Determinants of Lending to Customers: Evidence from Italy Between 2008 and 2012

Over the period between 2008 and 2012 the loans to customers trend, the quality deterioration of the loans to customers portfolios and the interest return on the lending to customers activity showed in Italy relevant heterogeneities by bank size and by juridical connotation. This paper, based on financial statements data between 2008 and 2012 from about 500 Italian banks, adopts a panel data analysis to investigate if the heterogeneities showed in the loans to customers trend, in the quality deterioration of the loans to customers portfolios and in the interest return on the lending to customers activity are effectively significant and to what extent they could be explained by the differences that could be identified in the main features of the intermediation model adopted by banks. Moreover, this paper investigates the existing relationship between the loans to customers development and the credit quality deterioration and to what extent they both contribute to affect the economic return of the lending to customers activity.

A Simple Model of Business Fluctuations with Heterogeneous Interacting Agents and Credit Networks

In what follows we firstly describe and then implement and simulate a very simple model, that is a simplified version of Riccetti et al. (2013), by using R. In the original paper, a multitude of heterogeneous firms and banks interact in the credit market. Firms want to produce and sell a homogeneous commodity in the goods market and, in order to finance production, they need credit from banks. Firms look at a random subset of potential partners (due to imperfect information) and then choose the most convenient bank (i.e. the bank charging the lowest interest rate); as a consequence, an endogenous network of credit interlinkages evolves over time. The model shows the emergence of business fluctuations and highlights both the role of financial fragility and network structure in shaping economic dynamics.