Econophysics

                                   Econophysics

In this paper we extend the macroeconomic agent-based model introduced in Macroeconomics from the Bottom Up (Delli Gatti et al., 2011) with the inclusion of a bank-bank credit network and other modifications – from the inclusion of the public sector, to a more detailed specification of the consumption function – with the ultimate goal of evaluating the impact of different policies in the presence of an interbank market. In fact, interbank markets represent one of the most important elements of the modern financial and monetary system (Allen et al., 2009). Well functioning interbank markets serve the purpose of enhancing liquidity exchanges among financial institutions as they facilitate the allocation of the liquidity surplus to illiquid banks, thereby playing a key role in banks liquidity management (Iori et al., 2015a; Xu et al., 2016). Interbank markets also are the focus of the implementation of monetary policies since they represent one of the main instruments for the transmission of monetary policy targets from central banks to the rest of the economy (Iori et al., 2015a). On the other hand, interbank markets are an important object of attention by regulators and policy makers due to their intrinsic network structure that may amplify the response of the financial system to (even single seemingly isolated) shocks, thus paving the way for potential financial contagion and domino effects (Ferrari, 2016).




                                                                Urooj Qureshi