WP3 Agent-based model of the macro-economy (MABM)

This model will be built with two-way links to the FABM developed under WP2 containing all the key elements involved in the crisis, modelled at a fine-grained level.

It will include households and firms. Households will have various levels of wealth and will be broken down into their role as consumers, workers, and the value of the house itself. Firms provide jobs and produce goods that are consumed by the households. Both households and firms will interact with banks, which will provide mortgages to households and loans to firms. Finally regulators will set policies such as interest rates or collateral requirements.

The work will be carried out in three phases. Mark I will take existing models of households, firms, and banks, and include a more sophisticated model of the housing market, and an improved model of the transmission of stress in the financial sector to the real economy.

Mark II will marry the macro model to the finance model and capture the essential network structure of both the financial economy and the real economy. Mark III will bring in some of the diversity – both institutional and economic – characterizing the European economy on the eve of the crisis. This includes both national fiscal policies, common monetary policy, export performance and competitiveness under the euro, and differential exposure of the banking system to national conditions.

Key objectives

  • Build the baseline MABM mark I, capturing the features of the macroeconomy essential to model the occurrence of a financial crisis and its macroeconomic repercussions.
  • Develop mark II, characterized by a richer and more realistic architecture of the corporate sector and/or of the financial side of the economy.
  • Devise a multi-country mark III, including at least two areas linked by cross-border interaction of agents that is the most appropriate to explore the European economy.

Deliverables

  •  D3.1          A survey paper on recent developments of input-output analysis
  • D3.2          A paper on development of MABM mark I
  • D3.3          A paper on development of MABM mark II
  • D3.4          A paper on development of MABM mark III