Agent-Based Modeling at Central Banks: Recent Developments and New Challenges

Abstract:

Over the past decade, agent-based models (ABMs) have become increasingly popular analytical tools at economic policy institutions. In this chapter, we document this trend by surveying the ABM-relevant research and policy outputs of twenty-four central banks and seven further related institutions. We present these studies and reports divided into three main categories: applied research connected to the mandates of central banks; technical and methodological research supporting the advancement of ABMs; and  examples of the deployment of ABMs for policy work. Our findings indicate that ABMs have emerged as effective complementary tools for central banks to fulfill their tasks, especially after the extension of their mandates following the global financial crisis of 2007–2009. While acknowledging that substantial room for improvement remains, we argue that integrating ABMs into the analytical frameworks of central banks can support more effective policy responses to emerging economic challenges, including those posed by the COVID-19 pandemic, digital currencies, or climate change.