Discussion Paper

No. 2011-31 | August 10, 2011
Debt Deleveraging and Business Cycles. An Agent-Based Perspective


The recent financial crises pointed out the central role of public and private debt in modern economies. However, even if debt is a recurring topic in discussions about the current economic situation, economic modelling does not take into account debt as one of the crucial determinants of economic dynamics. Our contribution, in this paper, is to investigate the issues of borrowing and debt load by means of computational experiments, performed in the environment of the agent-based Eurace simulator. We aim to shed some light on the relation between debt and the main economic indicators. Our results clearly confirm that the amount of credit money in the economy is a very important variable, that can affect economic performance in a twofold way: fostering growth or pushing the economy into recession or crisis. The outcomes of our experiments show a rich scenario of interactions between real and financial variables in the economy, and therefore represents a truly innovative tool for the study of economics.

Paper submitted to the special issue
New Approaches in Quantitative Modeling of Financial Markets

JEL Classification:

E2, E3, E44, E51



Cite As

Marco Raberto, Andrea Teglio, and Silvano Cincotti (2011). Debt Deleveraging and Business Cycles. An Agent-Based Perspective. Economics Discussion Papers, No 2011-31, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2011-31

Comments and Questions

Livio Stracca - Still unclear what the value added of agent-based models is
September 09, 2011 - 09:31

I think this is an interesting paper and more generally agend-based models are a potential useful tool for macroeconomics. Having said that, it is important to understand what their value added is compared with standard, representative-agent DSGE models used in macroeconomics. For example, does heterogeneity matter in the agent-based model ...[more]

... of this paper? What would happen if agents are assumed to be homogeneous? How about the bounded rationality assumptions in the model?
Ideally, these models should nest representative-agent DSGE models as a special case. It would then be useful to see how and where they add a different perspective that may be useful to understand macro phenomena such as deleveraging and financial crises.

Anonymous - Invited Reader Comment
September 13, 2011 - 11:28

see attached file

Marco Raberto - Reply to Invited Reader Comment
April 23, 2012 - 09:00

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Anonymous - Referee Report 1
October 20, 2011 - 11:56

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Marco Raberto - Reply to Referee Report 1
April 23, 2012 - 09:06

see attached file

Neil Lancastle - Model Design
January 30, 2012 - 17:49

I was fortunate to get an introduction to this model at a PhD conference in Paris last year. We discussed then, some of the limits of a simulation and agent-based modelling, but I was fascinated (and still am) by the design of the agents and model. So my ...[more]

... comments relate to the way the paper describes the Eurace model.

I have a background in software engineering, so I am quite used to UML diagrams, data models, business rule definitions and the like. I am less sure about academic writing, but the absence of these details left me asking:

a) Can I see the source code, or run a paramaterized version of the model myself?
b) Why choose five sectors: production firms, households, private banks, government, central banks? I was expecting something based on the Godley and Lavoie (2007) model which includes actions around investment, debt-creation, reserve management, bank leverage, production, consumption, imports, exports... both households and governments are consumers, the central bank deals with reserve management, and so on. I am vexed by the question 'do households invest?' or is that action reserved for capitalists in the long-run?
c) There are real world data on the activities of these sectors for different economies. Climate modellers simulate from real data, why not economists?
d) For each actor and action, what are the business rules and where is the academic justification? For example, the idea that central banks follow a 'passive' inflation-targeting rule concerns me. What about Moore's (1979) ideas on endogenous money, where the exchange rate is also a significant explanatory variable?
e) Again, in the post-Keynesian tradition I would expect multiple models (or, at least, parameters) as a reflection of the real world... some economies have capital controls, tax regimes differ (especially around credit) and so on.

I hope these comments are helpful, and good luck with the paper!

Anonymous - Referee Report 2
March 05, 2012 - 09:03

see attached file

Marco Raberto - Reply to Referee Report 2
April 23, 2012 - 09:06

see attached file