From micro behaviors to macro dynamics: An agent-based economic model with consumer credit

Abstract

The paper develops an agent-based model populated by heterogeneous consumers, a production sector and a banking sector. Taking a bottom up approach, the paper aims at providing a first tool to analyze households’ borrowing dynamics in the different phases of the business cycle by relaxing some assumptions of mainstream consumption models and considering more realistic household borrowing behaviors. Although very simple, the model allows us to grasp the main implications of the interaction between consumers’ wants (desired consumption), consumers’ beliefs (their expectations about their future income), the behavior of the banking sector (rationing) and the behavior of the production sector (forecasting future demand). After presenting and discussing sensitivity analysis over a set of parameters, the paper reports simulation results and the ex-post validation by comparing artificial and empirical distributions computed using the European Household Finance and Consumption Survey data set.