ABSTRACT
Introduction This chapter addresses the crucial issue of the interplay between credit and business cycles in an economy by means of an enriched version of the agent-based model and simulator Eurace. Eurace is a fully specified agent-based economic model, which includes different types of agents and integrates different types of markets (Cincotti et al., 2010, 2012; Raberto et al., 2012; Teglio et al., 2012, 2015). Agents include households, which act as consumers, workers, and financial investors; consumption goods producers as well as a capital goods producers; banks; a government; and a central bank. Agents interact in different types of market, namely, markets for consumption goods and capital goods; a labor markets; a credit market and a financial market for stocks and government bonds. Except for the financial market, all markets are characterized by decentralized exchange with price-setting behavior on the supply side. Agents’ decision processes are characterized by bounded rationality and limited information gathering and computational capabilities (Tesfatsion, 2003; Tesfatsion and Judd, 2006); thus, agents’ behavior follows adaptive rules derived from the management literature about firms and banks, and from experimental and behavioral economics of consumers and financial investors. Furthermore, the Eurace model presented in this chapter has been enriched by a housing market where households are allowed to buy and sell homogeneous housing units as well as borrow mortgages from the banking system.
