Financial Stability Workshop - DeTail: macroprudential policy assessment in a parsimonious agent-based model

Abstract

We build a parsimonious, credit driven agent based model which consistently integrates the balance sheets of multiple firms, households and banks to then simulate the effects of releasable macroprudential capital buffers (e.g. CCyB). Starting from the framework in Gross (2022) which generates well-behaved endogenous cycles built on the key assumptions of interest bearing debt and nominal wage rigidity, our extended framework additionally integrates a mortgage financed housing market, credit restrictions and multiple banks under both time invariant and time varying prudential policies. Our simulations specifically focus on the relative contribution of different prudential policies and assess the model behaviour and impact of policy rules on the tails of the distribution of different variables of interest such as corporate, household and bank default rates as well as credit and house prices. The simulations also distinguish between good and bad economic times to shed light on the asymmetric benefits and costs of capital based macroprudential policies.