ABMLP: A Monetary System Model

Agent-Based Model Liquidity Preference (ABMLP) is a computational interpretation of the third sectoral system described by G&L.

The Portfolio Decision

The interest rate offered will affect the composition of a household agent's asset portfolio. Model households now have a third financial asset in which to invest. Household agents will choose, based on their expectations and liquidity preferences, to allocate wealth between money, bills and long-term government bonds.

Long-Term Bonds & System Accounting

Mirroring G&L pp133 - 135.

When household agents make their long-term bond decisions, three features matter. First households are concerned with the price that the long-term bond fetches in the current period, for this defines the yield of the asset which will arise in the next period (model step). Second, what also matters is the expected price of the bond in the next period, when it will be possible to sell the bond. These two prices help define what we shall call the pure expected rate of return on bonds. The third factor is the confidence with which households hold their expectations about future bond prices. In a model where there may be a multiplicity of household agent opinions, it is a measure of the weight that households investors attribute to the validity of their expectations.

View long-term bond framework and system accounting spreadsheets.


A Macro View

Government bonds play a critical macro-financial role in modern finance. This is a collateral-intensive market-based financial system organised around securities, derivatives and wholesale money markets. In the United Kingdom of Great Britain (UK) government bonds (Gilts) are central to the stability of evolving market finance; their future price and yield volatility are of considerable importance to financial system participants.

Model Experiment

Experiments consume available real-world United Kingdom of Great Britain (UK) economic time-series.

Purpose

The purpose of experiments is to develop (over time) model government and household agent decision-making logic that reflects real-world 'UK Treasury View' and 'bond price expectations' respectively. Experiments may generate behaviours and dynamics into the future, beyond latest available UK time-series data.

Logic Context

Expenditures & Taxation

  • Godley & Lavoie (see reading), chapter 5, 'The effect of household liquidity preference on long rates' and 'Making government expenditures endogenous', pp 153-165.
  • Agent views may be expressed; see the draft document types and taxation .

Experiment Data Reports