A basic model to examine alternative monetary systems

What is it about?

Can the financial system be organized in a more resilient and sustainable structure? This paper presents a basic macroeconomic agent-based model to examine alternative monetary system approaches which claim to improve financial stability vis-à-vis the current system.

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Photo by micheile henderson on Unsplash

Photo by micheile henderson on Unsplash

Why is it important?

The financial system is a critical element in the development and functioning of an economy but is inherently prone to fragility. Notably, the crisis of 2007/2008 triggered a debate about possible alternative monetary system approaches and how to improve the financial system's stability. In this context, the monetary system affects the lending potential of banks and might impact the dynamics of financial crises. It is the underlying "software" of the financial system that enables payments, savings, insurance, and financing. Monetary regime changes have already been discussed in several European parliaments and were the subject of a referendum in Switzerland. However, their effectiveness and efficacy concerning macro-financial stability are not well-known. This paper defines the economic requirements for modeling the current monetary system and introduces the corresponding macroeconomic agent-based model (MABM). The MABM aims to present a starting point for exploring and analyzing monetary reforms.

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