COUNTERCYCLICAL CAPITAL BUFFERS, BANK CONCENTRATION AND MACROFINANCIAL STABILITY IN AN AGENT-BASED MACRO-FINANCIAL FRAMEWORK

Abstract

This paper examines the impact of countercyclical capital buffers (CCyBs) on financial stability and contributes to the discussion of CCyBs in an agent-based framework. The main focus of this work lies upon the question whether the implementation of CCyBs according to the Basel III framework improves financial stability unconditionally, or at the expense of unintended side effects. For this purpose, we extend the agent-based model of [Riccetti, L., Russo, A. and Gallegati, M., Firm–bank credit network, business cycle and macroprudential policy, J. Econ. Interact. Coord. (2021)] to investigate the effect of credit-to-GDP gap-based CCyBs in general as well as the effects of varying the smoothing parameter lambda [Formula: see text] of the Hodrick–Prescott (HP) filter within the method of calculating CCyBs. To the best of our knowledge, this study is the first one that investigates systematically how the method of calculating credit-to-GDP gap-based CCyBs may affect macrofinancial dynamics and stability in such an agent-based framework.