ABSTRACT
This chapter explores the macroprudential policy stance optimality using an agent-based modelling (ABM) that was calibrated to a small open economy. The chapter contrasts conventional DSGE-based welfare analysis, which relies on representative-agent assumptions, with ABM's capacity to incorporate heterogeneity and non-linear financial dynamics. By simulating counterfactual policy settings, the model analyses stability, inequality and welfare trade-offs, highlighting Minskyan boom-bust behaviour and the stabilising role of prudential tools. The results indicate that robust macroprudential intervention reduces defaults and financial fragility; however, the distributional effects vary and stability does not automatically improve equity. The chapter concludes that the optimal macroprudential design requires balancing resilience with distributional concerns.
