Bubbles, Crashes and the Financial Cycle: Insights from a Stock-Flow Consistent Agent-Based Macroeconomic Model

van der Hoog S, Dawid H (2015) Working Papers in Economics and Management; 01-2015.
Bielefeld: Bielefeld University, Department of Business Administration and Economics.

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Abstract
This paper explores how different credit market- and banking regulations affect business fluctuations. Capital adequacy- and reserve requirements are analysed for their effect on the risk of severe downturns. We develop an agent-based macroeconomic model in which finan- cial contagion is transmitted through balance sheets in an endogenous firm-bank network, that incorporates firm bankruptcy and heterogeneity among banks to capture the fact that contagion effects are bank-specific. Using concepts from the empirical literature to identify amplitude and duration of recessions and expansions we show that more stringent liquidity regulations are best to dampen output fluctuations and prevent severe downturns. Under such regulations both leverage along expansions and amplitude of recessions become smaller. More stringent capital requirements induce larger output fluctuations and lead to deeper, more fragile recessions. This indicates that the capital adequacy requirement is pro-cyclical and therefore not advisable as a measure to prevent financial contagion.
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van der Hoog S, Dawid H. Bubbles, Crashes and the Financial Cycle: Insights from a Stock-Flow Consistent Agent-Based Macroeconomic Model. Working Papers in Economics and Management. Vol 01-2015. Bielefeld: Bielefeld University, Department of Business Administration and Economics; 2015.
van der Hoog, S., & Dawid, H. (2015). Bubbles, Crashes and the Financial Cycle: Insights from a Stock-Flow Consistent Agent-Based Macroeconomic Model (Working Papers in Economics and Management, 01-2015). Bielefeld: Bielefeld University, Department of Business Administration and Economics. doi:10.4119/unibi/2915552
van der Hoog, S., and Dawid, H. (2015). Bubbles, Crashes and the Financial Cycle: Insights from a Stock-Flow Consistent Agent-Based Macroeconomic Model. Working Papers in Economics and Management, 01-2015, Bielefeld: Bielefeld University, Department of Business Administration and Economics.
van der Hoog, S., & Dawid, H., 2015. Bubbles, Crashes and the Financial Cycle: Insights from a Stock-Flow Consistent Agent-Based Macroeconomic Model, Working Papers in Economics and Management, no.01-2015, Bielefeld: Bielefeld University, Department of Business Administration and Economics.
S. van der Hoog and H. Dawid, Bubbles, Crashes and the Financial Cycle: Insights from a Stock-Flow Consistent Agent-Based Macroeconomic Model, Working Papers in Economics and Management, vol. 01-2015, Bielefeld: Bielefeld University, Department of Business Administration and Economics, 2015.
van der Hoog, S., Dawid, H.: Bubbles, Crashes and the Financial Cycle: Insights from a Stock-Flow Consistent Agent-Based Macroeconomic Model. Working Papers in Economics and Management, 01-2015. Bielefeld University, Department of Business Administration and Economics, Bielefeld (2015).
van der Hoog, Sander, and Dawid, Herbert. Bubbles, Crashes and the Financial Cycle: Insights from a Stock-Flow Consistent Agent-Based Macroeconomic Model. Bielefeld: Bielefeld University, Department of Business Administration and Economics, 2015. Working Papers in Economics and Management. 01-2015.
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