We review heterogeneous agent-based models of financial stability and their application in stress tests. In contrast to the mainstream approach, which relies heavily on the rational expectations assumption and focuses on situations where it is possible to compute an equilibrium, this approach...

What kind of models do we need to guide us through the next crisis? If past crises are any indication, we need to explore new approaches. During the Great Financial Crisis, the models that existed at the time were of little value because they focused on firm-level interactions and did not...

We use a simple agent based model of value investors in financial markets to test three credit regulation policies. The first is the unregulated case, which only imposes limits on maximum leverage. The second is Basle II and the third is a hypothetical alternative in which banks perfectly hedge...

In this paper, we consider models of price-mediated contagion in a banking network of common asset holdings. For these models, the literature proposed two alternative classes of liquidation dynamics: threshold dynamics (banks liquidate their investment portfolios only after they have defaulted),...

In this paper, we consider models of price-mediated contagion in a banking network of common asset holdings. For these models, the literature proposed two alternative classes of liquidation dynamics: threshold dynamics (banks liquidate their investment portfolios only after they have defaulted),...

Financial networks are an important source of systemic risk, but often only partial network information is available. In this paper, we use data on bank-firm credit relationships in Japan and conduct a horse race between different network reconstruction methods in terms of their ability to...