Title: An Agent Based Approach to Interbank Networks and Monetary Policy
Abstract: As the recent financial crisis has shown, the structure and dynamics of interbank markets have to be taken into account when assessing the resilience of the financial system. Networkand multi-agent models of banking systems are particularly useful for this task. This paper proposes a dynamic multi-agent model of a banking system where banks optimize a portfolio of risky investments and riskless excess reserves according to their risk and liquidity preferences. They are endogenously linked via interbank loans and face a stochastic supply of household deposits. The goal of this paper is to use this model to answer three key questions about the impact of the network structure on financial stability. First, how efficient is the central bank in stabilizing interbank markets with different network structures during a crisis? Second, which network structures are most resilient to financial distress and thus most desirable from a financial stability point of view? And third, given a specific network structure, what form of systemic risk poses a greater threat to financial stability: interbank contagion or common shocks?
Publication Year: 2011
Publication Date: 2011-01-01
Language: en
Type: article
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Cited By Count: 2
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