Abstract
Abstract This paper investigates the housing and mortgage markets by means of an agent-based macroeconomic model of a credit network economy. A set of computational experiments have been carried out in order to explore the effects of different households’ creditworthiness conditions required by banks in order to grant a mortgage. Results show that easier access to credit inflates housing prices, triggering a short run output expansion. However, the artificial economy becomes more unstable and prone to recessions. With stricter conditions the economy is more stable and does not fall into serious recessions, although a too severe regulation can slow down economic growth.
Highlights
The most widely used modeling approach in macroeconomics is based on the general equilibrium framework, and a class of models, known as dynamic stochastic general equilibrium (DSGE) models (see e.g. Smets et al (2002)), are the workhorses in the field
Agent-based models have shown promise of being able to take into account the complex interactions of different economic agents (see e.g. Tesfatsion and Judd (2006) for a review), the interplay between credit supply and the real economy (see e.g. Delli Gatti (2010), Raberto et al (2012) and Teglio et al (2012)) and reproducing multiple stylized facts of the economy (see e.g. Dosi et al (2010) and Dosi et al (2013))
Agent-based models do not assume that the economy will end up in an equilibrium state subject to exogenous shocks, but allow shocks to be endogenously generated due to interactions between economic agents or sectors, i.e., firms and banks, borrowers and lenders, that interact in decentralized markets with limited information and foresight
Summary
The most widely used modeling approach in macroeconomics is based on the general equilibrium framework, and a class of models, known as dynamic stochastic general equilibrium (DSGE) models (see e.g. Smets et al (2002)), are the workhorses in the field. The shortcomings of the general equilibrium framework and its variations have been known for a long time (Kirman (1989)) and recently have been subject to severe scrutiny due to lack of consideration of financial factors and their inability to foresee the great recession. Agent-based models have shown promise of being able to take into account the complex interactions of different economic agents Unlike DSGE models, agent-based models rule out the representative-agent paradigm, shown by Kirman (1992) to be flawed in many respects. Agent-based models do not assume that the economy will end up in an equilibrium state subject to exogenous shocks, but allow shocks to be endogenously generated due to interactions between economic agents or sectors, i.e., firms and banks, borrowers and lenders, that interact in decentralized markets with limited information and foresight
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