Journal of Evolutionary Economics

, Volume 29, Issue 1, pp 429–465 | Cite as

From financial instability to green finance: the role of banking and credit market regulation in the Eurace model

  • Marco RabertoEmail author
  • Bulent Ozel
  • Linda Ponta
  • Andrea Teglio
  • Silvano Cincotti
Regular Article


We investigate appropriate banking and regulatory policies aimed at pushing the banking sector to shift from speculative lending, the cause of asset bubbles and economic crises, to green investments lending, so as to foster the transition to a more energy efficient production technology. For this purpose, we consider an enriched version of the Eurace model, which includes heterogenous capital goods, allowing for different degrees of energy efficiency in the production technology. Credit money in Eurace is endogenous and limited by Basel capital adequacy regulation on the supply side, while on the demand side it is determined by firms’ investments and households’ house purchasing. We introduce a differentiation of capital requirements according to the destination of lending, demanding higher bank capital in the case of speculative lending, thus encouraging banks to finance firm investment. As up-to-date capital goods have better energy efficiency in the model design, a higher pace of investment implies also a positive environmental effect. Results suggest that the proposed regulation is able to foster investments and capital accumulation in the short term, improving the energy efficiency of firms. However, reducing mortgages with a restrictive regulation has a negative impact on total private credit, and thus on endogenous money supply, weakening consumption and aggregate demand. In the long term, the contraction of total credit becomes stronger, and the negative outcomes on aggregate demand also affect investment. Therefore, in the long run, the positive effects on capital and energy efficiency become negligible, while the main economic indicators deteriorate.


Green finance Capital requirements Energy efficiency Agent-based modeling 

JEL Classification

E51 Q58 C63 



The authors acknowledge EU-FP7 collaborative project SYMPHONY under grant no. 611875.

Compliance with Ethical Standards

This study was funded by EU-FP7 (grant number 611875).

Conflict of interests

The authors declare that they have no conflict of interest.


  1. Acemoglu D, Aghion P, Bursztyn L, Hemous D (2012) The environment and directed technical change. Am Econ Rev 102(1):131–66CrossRefGoogle Scholar
  2. Acemoglu D, Akcigit U, Hanley D, Kerr W (2016) Transition to clean technology. J Polit Econ 124(1):52–104CrossRefGoogle Scholar
  3. Aglietta M, Espagne E, Perrissin-Fabert B (2015) A proposal to finance low carbon investment in Europe. France Stratégie, ParisGoogle Scholar
  4. Arthur WB (2006) Out-of-equilibrium economics and agent-based modeling. Handbook of Computational Economics 2:1551–1564CrossRefGoogle Scholar
  5. Assenza T, Delli Gatti D, Grazzini J (2015) Emergent dynamics of a macroeconomic agent based model with capital and credit. J Econ Dyn Control 50:5–28CrossRefGoogle Scholar
  6. Baker D (2008) The housing bubble and the financial crisis. Real-World Economics Review 46(20):73– 81Google Scholar
  7. Balint T, Lamperti F, Mandel A, Napoletano M, Roventini A, Sapio A (2017) Complexity and the economics of climate change: a survey and a look forward. Ecol Econ 138:252–265CrossRefGoogle Scholar
  8. Baumeister C, Kilian L (2016) Forty years of oil price fluctuations: why the price of oil may still surprise us. J Econ Perspect 30(1):139–160CrossRefGoogle Scholar
  9. Bernanke B, Gertler M (1989) Agency costs, net worth, and business fluctuations. Am Econ Rev 79(1): 14–31Google Scholar
  10. Caiani A, Godin A, Caverzasi E, Gallegati M, Kinsella S, Stiglitz JE (2016) Agent based-stock flow consistent macroeconomics: towards a benchmark model. J Econ Dyn Control 69:375–408CrossRefGoogle Scholar
  11. Campiglio E (2016) Beyond carbon pricing: the role of banking and monetary policy in financing the transition to a low-carbon economy. Ecol Econ 121:220–230CrossRefGoogle Scholar
  12. Caverzasi E, Godin A (2015) Post-keynesian stock-flow-consistent modelling: a survey. Camb J Econ 39(1):157–187CrossRefGoogle Scholar
  13. Cincotti S, Raberto M, Teglio A (2010) Credit money and macroeconomic instability in the agent-based model and simulator Eurace. Economics: The Open-Access, Open-Assessment E-Journal 4 (2010-26)Google Scholar
  14. Cincotti S, Raberto M, Teglio A (2012a) The Eurace macroeconomic model and simulator. In: Aoki M, Binmore K, Deakin S, Gintis H (eds) Complexity and institutions: markets, norms and corporations, vol II. Palgrave McMillan, pp 81–106Google Scholar
  15. Cincotti S, Raberto M, Teglio A (2012b) Macroprudential policies in an agent-based artificial economy. Revue de l’OFCE 5:205–234Google Scholar
  16. Dawid H, Harting P, Neugart M (2014) Economic convergence: policy implications from a heterogeneous agent model. J Econ Dyn Control 44:54–80CrossRefGoogle Scholar
  17. Dawid H, Gemkow S, Harting P, Van der Hoog S, Neugart M (2016) Agent-based macroeconomic modeling and policy analysis: the Eurace@unibi model. In: Chen S-H, Kaboudan M (eds) Handbook of computational economics and finance. Oxford University Press, OxfordGoogle Scholar
  18. Dosi G, Fagiolo G, Roventini A (2010) Schumpeter meeting keynes: a policy-friendly model of endogenous growth and business cycles. J Econ Dyn Control 34(9):1748–1767CrossRefGoogle Scholar
  19. Dosi G, Fagiolo G, Napoletano M, Roventini A (2013) Income distribution, credit and fiscal policies in an agent-based Keynesian model. J Econ Dyn Control 37 (8):1598–1625CrossRefGoogle Scholar
  20. Dosi G, Fagiolo G, Napoletano M, Roventini A, Treibich T (2015) Fiscal and monetary policies in complex evolving economies. J Econ Dyn Control 52:166–189CrossRefGoogle Scholar
  21. Duca JV, Muellbauer J, Murphy A (2010) Housing markets and the financial crisis of 2007–2009: lessons for the future. J Financ Stab 6(4):203–217CrossRefGoogle Scholar
  22. ECB (2013) Monthly bulletin october.
  23. Erlingsson E, Teglio A, Cincotti S, Stefansson H, Sturluson J, Raberto M (2014) Housing market bubbles and business cycles in an agent-based credit economy. Economics: The Open-Access, Open-Assessment E-Journal 8 (2014-8)Google Scholar
  24. Fagiolo G, Roventini A (2016) Macroeconomic policy in DSGE and agent-based models redux: developments and challenges ahead. Journal of Artificial Societies and Social Simulation 20:1CrossRefGoogle Scholar
  25. Farmer JD, Hepburn C, Mealy P, Teytelboym A (2015) A third wave in the economics of climate change. Environ Resour Econ 62(2):329–357CrossRefGoogle Scholar
  26. Ferron C, Morel R (2014) Smart unconventional monetary (sumo) policies: giving impetus to green investment. Climate Report 46Google Scholar
  27. Gerst MD, Wang P, Roventini A, Fagiolo G, Dosi G, Howarth RB, Borsuk ME (2013) Agent-based modeling of climate policy: an introduction to the engage multi-level model framework. Environ Model Softw 44:62–75CrossRefGoogle Scholar
  28. Godley W, Lavoie M (2012) Monetary economics: an integrated approach to credit, money, income, production and wealth, 2nd edn. Palgrave macmillanGoogle Scholar
  29. Goulder LH, Parry IW (2008) Instrument choice in environmental policy. Rev Environ Econ Policy 2(2):152–174CrossRefGoogle Scholar
  30. Gualdi S, Tarzia M, Zamponi F, Bouchaud J (2015) Tipping points in macroeconomic agent-based models. J Econ Dyn Control 50:29–61CrossRefGoogle Scholar
  31. Hepburn C (2006) Regulation by prices, quantities, or both: a review of instrument choice. Oxf Rev Econ Policy 22(2):226–247CrossRefGoogle Scholar
  32. IEA (2012) Energy technology perspectives 2012: pathways to a clean energy system. OECD/IEAGoogle Scholar
  33. IEA (2016) Energy Efficiency Market Report 2016. OECD/IEAGoogle Scholar
  34. Kaldor N (1972) The irrelevance of equilibrium economics. Econ J 82:1237–1255CrossRefGoogle Scholar
  35. Keen S (2009) The global financial crisis, credit crunches and deleveraging. The Journal of Australian Political Economy (64):22Google Scholar
  36. Kiyotaki N, Moore J (1997) Credit cycles. J Polit Econ 105(2):211–248CrossRefGoogle Scholar
  37. Klimek P, Poledna S, Farmer D, Thurner S (2015) To bail-out or to bail-in? answers from an agent-based model. J Econ Dyn Control 50:144–154CrossRefGoogle Scholar
  38. Lamperti F, Napoletano M, Roventini A (2015) Preventing environmental disasters: market-based vs. commandand-control policies. LEM papers series 2015/34Google Scholar
  39. McLeay M, Radia A, Thomas R (2014) Money creation in the modern economy. Bank of England Quarterly Bulletin 54(1):14–27Google Scholar
  40. Minsky H (1986) Stabilizing an unstable economy. Yale University Press, New HavenGoogle Scholar
  41. Monasterolo I, Raberto M (2018) The EIRIN flow-of-funds behavioural model of green fiscal policies and green sovereign bonds. Ecol Econ 144(2):228–243CrossRefGoogle Scholar
  42. Muellbauer J (2015) Housing and the macroeconomy: inflation and the financial accelerator. J Money Credit Bank 47(S1):51–58CrossRefGoogle Scholar
  43. Nelson D, Shrimali G (2014) Finance mechanisms for lowering the cost of renewable energy in rapidly developing countries. Climate Policy Initiative.
  44. Nordhaus WD (1994) Managing the global commons: the economics of climate change, vol 31. MIT Press, CambridgeGoogle Scholar
  45. Nordhaus WD (2013) The climate casino: risk, uncertainty, and economics for a warming world. Yale University Press, New HavenGoogle Scholar
  46. Nordhaus WD, Boyer J (2000) Warming the world: economic models of global warming. MIT Press, CambridgeCrossRefGoogle Scholar
  47. Ozel B, Nathanael RC, Raberto M, Teglio A, Cincotti S (2016) Macroeconomic implications of mortgage loans requirements: an agent based approach. Working Papers 2016/05 Economics Department, Universitat Jaume I, Castellón (Spain)Google Scholar
  48. Ponta L, Raberto M, Teglio A, Cincotti S (2018) An agent-based stock-flow consistent model of the sustainable transition in the energy sector. Ecol Econ 145:274–300CrossRefGoogle Scholar
  49. Popp D (2004) Entice: endogenous technological change in the dice model of global warming. J Environ Econ Manag 48(1):742–768CrossRefGoogle Scholar
  50. Raberto M, Teglio A, Cincotti S (2012) Debt deleveraging and business cycles. an agent-based persperctive. The Open-Access, Open-Assessment E-Journal 6, 2012-27Google Scholar
  51. Raberto M, Cincotti S, Teglio A (2014) Economic policy and the financial crisis. Routledge frontiers of political economy. Taylor & francis, ch. 9Google Scholar
  52. Riccetti L, Russo A, Gallegati M (2015) An agent based decentralized matching macroeconomic model. J Econ Interac Coord 10(2):305–332CrossRefGoogle Scholar
  53. Rozenberg J, Hallegatte S, Perrissin-Fabert B, Hourcade J-C (2013) Funding low-carbon investments in the absence of a carbon tax. Clim Pol 13(1):134–141CrossRefGoogle Scholar
  54. Ruiz JR, Stupariu P, Vilariño Á (2015) The crisis of spanish savings banks. Cambridge, Journal of Economics, bev078Google Scholar
  55. Russo A, Riccetti L, Gallegati M (2016) Increasing inequality, consumer credit and financial fragility in an agent based macroeconomic model. J Evol Econ 26(1):25–47CrossRefGoogle Scholar
  56. Stern N (2009) A blueprint for a safer planet: how to manage climate change and create a new era of progress and prosperity. Bodley Head, LondonGoogle Scholar
  57. Teglio A, Raberto M, Cincotti S (2012) The impact of banks’ capital adequacy regulation on the economic system: an agent-based approach. Adv Complex Syst 15(supp02):1250040CrossRefGoogle Scholar
  58. Teglio A, Mazzocchetti A, Ponta L, Raberto M, Cincotti S (2017) Budgetary rigour with stimulus in lean times: policy advices from an agent-based model. J Econ Behav Organ.
  59. Tonelli F, Fadiran G, Raberto M, Cincotti S (2016) Approaching industrial sustainability investments in resource efficiency through agent-based simulation. In: Borangiu T, Trentesaux D, Thomas A, McFarlane D (eds) Service orientation in holonic and multi-agent manufacturing. Springer, pp 145–155Google Scholar
  60. Turner A (2013) Debt, money and mephistopheles: how do we get out of this mess? Speech by Adair Turner, FSA Executive Chairman at the Cass Business SchoolGoogle Scholar
  61. UNEP (2016) Global trends in renewable energy investment 2016. UNEP reportGoogle Scholar
  62. van der Zwaan BCC, Gerlagh R, Klaassen G, Schrattenholzer L (2002) Endogenous technological change in climate change modelling. Energy Economics 24 (1):1–19CrossRefGoogle Scholar
  63. WB (2015) State and trends of carbon pricing 2015. World Bank PublicationsGoogle Scholar
  64. WEF (2013) The green investment report: the ways and means to unlock private finance for green growth (Geneva, Switzerland: World Economic Forum)Google Scholar
  65. Werner RA (2014) Can banks individually create money out of nothing?—the theories and the empirical evidence. Int Rev Financ Anal 36:1–19CrossRefGoogle Scholar
  66. Xiao Q, Devaney S (2016) Are mortgage lenders guilty of the housing bubble? A UK perspective. Appl Econ 48(45):4271–4290CrossRefGoogle Scholar

Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2018

Authors and Affiliations

  • Marco Raberto
    • 1
    Email author
  • Bulent Ozel
    • 2
  • Linda Ponta
    • 1
    • 3
  • Andrea Teglio
    • 2
    • 4
  • Silvano Cincotti
    • 1
  1. 1.DIMEUniversity of GenoaGenoaItaly
  2. 2.Department of EconomicsUniversity Jaume ICastellonSpain
  3. 3.School of EngineeringLIUC - Cattaneo UniversityCastellanzaItaly
  4. 4.Department of EconomicsCa’ Foscari University of VeniceVeniceItaly

Personalised recommendations