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(see, for instance, [6] and [1]). However, in a monetary production economy, such
as the capitalist system, this situation may lead to a fall of the profit rate that,
in turn, may result in lower production. The consequent rise of unemployment
may further deteriorates macroeconomic conditions.
In order to analyse this complex scenario, we propose a macroeconomic micro-
founded framework with heterogeneous agents in which households, firms, and
banks interact according to a decentralized matching process presenting common
features across four markets: goods, labour, credit and deposits. For a compre-
hensive description of the modelling framework see [9]. In general, the idea is to
start from simple (adaptive) behavioural rules at the individual level in order
to reproduce the emergence of aggregate regularities ([13]). In other words, we
build the macroeconomy from the
bottom up
([4]).
In our setting, agents are boundedly rational and follow (relatively) simple
rules of behaviour in an incomplete and asymmetric information context: house-
holds try to buy consumption goods from the cheapest supplier, they also try
to work in the firm offering the highest wage; firms try to accumulate profits by
selling their products to households (they set the price according to their indi-
vidual excess demand) and hiring cheapest workers; workers update the asked
wage according to their occupational status (upward if employed, downward if
unemployed); households' saving goes into bank deposits; given the Basilea-like
regulatory constraints, banks extend credit to finance firms' production; firms
choose the banks offering lowest interest rates, while households deposit money
in the banks offering the highest interest rates.
In this agent based macroeconomic setting, we assume that firms' financial
structure is based on the Dynamic Trade-Off theory ([5]). According to this
theory, firms have a “target leverage”, that is a desired ratio between debt and
net worth, and they try to reach it by following an adaptive rule governing credit
demand. This capital structure has a relevant role in influencing the leverage
cycle, with important consequences on macroeconomic dynamics ([10]). We also
consider the action of two policy makers: the government and the central bank.
The government hires a fraction of the population as public workers, so providing
an additional component of the aggregate demand. Moreover, the public sector
taxes private agents and issues public debt. The central bank sets the policy
rate and manages the quantity of money in the system. Furthermore, in our
framework the central bank is committed to buy outstanding government bonds.
We analyse the dynamics of the model by means of computer simulation; some
macroeconomicproperties endogenouslyemerge: business cycle fluctuations, nom-
inal GDP growth, the Phillips curve, leverage cycles and credit constraints, bank
defaults and financial instability, and the importance of government as an acycli-
cal sector which stabilise the economy. In particular, banks' capitalisation plays a
relevant role in determining credit conditions, so influencing firms' leverageand, in
general, the macroeconomic evolution. The presence of an acyclical sector, that is
the government, has a fundamental role in sustaining the aggregatedemand and in
mitigating output volatility. Another interesting feature of the model is that credit
mismatch (that is the difference between banks' credit supply and firms' credit
