Financial crisis and international imbalances: A stock-flow consistent agent based approach

The aim of this project is to gain a deeper understanding of a) the financial sector dynamics that led to the financial crisis of 2007/2008 and b) the impact of the crisis on the Eurozone. For this purpose we will employ the innovative technique of Agent-Based Stock-Flow Consistent Modelling (AB-SFC) (Caiani et al., 2016). We will draw on previous work in Kapeller and Schütz (2014) and Kapeller et al. (2018) to develop an AB-SFC that captures essential features of pre- and post-crisis developments in the Eurozone. By doing so, we will start with a single country AB-SFC, where we put special emphasis on the analysis of financial sector dynamics. An important element of this model will be the concept of financial instability as initially proposed by Minsky (1986). Once we are able to replicate crisis dynamics on a national level, we will move attention to the international level with a special focus on the Eurozone. In this context, we will move to a 3-country-framework representing the Eurozone core, the Eurozone periphery and the rest of the world. In the analysis that follows we will focus on the international financial sector dynamics that arise within a monetary union, given the national tendencies discussed before. We will particularly look at international capital flows between banks and the resulting evolution of balance sheets. Ultimately, this modelling approach will allow us to simulate potential policy scenarios for the Eurozone.

 

Project Details

Project Lead

Bernhard Schütz

Associates

Anna Hornykewycz

Project Start

2020