Description

Eurace is an agent-based macroeconomic model and simulator that has been developed in the last ten years within two EU-funded projects[1],[2].

The baseline Eurace model included households, acting as workers, consumers and financial investors; firms, producing a homogenous consumption goods; a capital goods producer; commercial banks and two policy makers agents, namely a government and a central bank, in charge of fiscal and monetary policy, respectively. Agents’ behavior has been modelled as myopic and characterized by limited information and adaptive expectations. Details about households’ decision making in the baseline Eurace model have been provided in Cincotti et al. (2012b), Holcombe et al. (2013), Teglio et al. (2015).

Results of computational experiments with the Eurace baseline models showed the importance of credit in driving business cycles (Raberto et al., 2012; Teglio et al. 2012) and the relevance of regulating banks’ lending activity, being the source of endogenous credit money in the economy (Teglio et al., 2011; Cincotti et al., 2012a; Teglio et al., 2012). Results also showed the interplay between fiscal and unconventional monetary policy, i.e. quantitative easing, and the negative effects on the cycle of austerity policies in particular during downturns (Raberto et al., 2014; Teglio et al., 2015). The relevance of credit has been further confirmed in studying the effects on the economy of empowering banks with possibility to securitize loans and debts (Mazzocchetti et al. 2016).

Recently, the Eurace model and simulator has been developed along different lines and the model has been enriched with new features.  In particular, a housing market with related mortgage lending capability by banks has been designed and included in the model for studying the macroeconomic implications of the additional endogenous money generated by the new mortgage lending channel (Ozel et al., 2016; Nathanael et al. 2016). In the same fashion, a reduced version of the Eurace model, called Iceace has been also developed with the purpose to study the housing bubble and bust in the Icelandic economy (Erlingsson et al., 2013, Erlingsson et al.; 2014).

Furthermore, the Eurace model has been enriched to investigate different sustainability issues and related policies. In particular, cost-benefit analyses have been made about fiscal policies aimed to incentivize resource and energy efficiency investments by firms (Tonelli et al, 2016), as well as concerning banking regulatory policies aimed to facilitate lending for resource and energy efficiency investments with respect to speculative ones (Raberto et al., 2016). A new energy sector has also been introduced into the model to study fiscal policies targeted to foster the sustainability transition from fossil-fuels based to renewable energy production (Ponta et al, 2016).  Finally, the Eurace model has been converted from a single-country to a multi-country model. This allows for computational experiments with many interacting countries that can exchange labor, goods and capital (Petrovic et al., 2016).

From a methodological perspective, the distinctive feature of the Eurace modelling is the characterization of any agent with a double-entry balance sheet that includes the details of all assets and liabilities (Teglio et al. 2010). The dynamical change of balance sheet variables depends on agents’ plan and on the result of agents interaction within the different market settings. This approach allows to check the consistency at any time step between stocks and flows in the model, both at the level of the single agent and at the aggregate one, in line also with the post-Keynesian stock-flow-consistent modelling approach.

[1] FP6 Project Eurace

[2] FP7 Project Symphony www.projectsymphony.eu