Elena Varino

Computer Science and Simulation for Economics

Project work on

"Bank payment system."

 

The applet requires Java 1.4.1 or higher. It will not run on Windows 95 or Mac OS 8 or 9. Mac users must have OS X 10.2.6 or higher and use a browser that supports Java 1.4. (Safari works, IE does not. Mac OS X comes with Safari. Open Safari and set it as your default web browser under Safari/Preferences/General.) On other operating systems, you may obtain the latest Java plugin from Sun's Java site.


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view/download model file: bank_payment_system.nlogo

WHAT IS IT?

The model simulates the payments among the banks that are operating in a
given economic system.
In this project there are 10 banks that effect the exchange of money between them and a central bank intervening in specific cases.


HOW IT WORKS

The banks follow a set of simple rules.
The banks effect exchanges of money among themselves, and the amount of every single operation is read in a file.
When the budget of a bank is under a certain level (for every bank it is different, and can be positive or negative) then the bank asks the central bank for a loan.
The loans are not granted in a boundless way, in fact the central bank has a limited quantity of money that it can introduce in to the system (a slider controls this).


HOW TO USE IT

Click the SETUP button to set up the banks (blue) and the central bank (green). Click the GO button to start the simulation. A bank turns red when it's budget is under zero and a the central bank fails when it grants loans over the limit of the slider.

There is one slider. MAXIMUM_AMOUNT_OF_LOANS_GRANTED_AS_THE_CENTRAL_BANK control the limit of loans that the central bank can grant. Changes in this slider do not take effect until the next setup.

While the simulation runs, two plots are displayed. In the plot NUMBER OF BANKS the number of banks in deficit and the number of banks with cash balance are displayed. In the plot AMOUNTS the amounts of deficit, the amount of cash balance and the money of the central bank are displayed.


THINGS TO NOTICE

Watch the TOTAL NUMBER OF BANKS monitor, the NUMBER OF BANKS IN DEFICIT monitor, the NUMBER OF BANKS IN CREDIT monitor and the NUMBER OF BANKS plot to see how the number of banks changes over time. You can see that the total the number of the banks doesn't change, but the number of banks in deficit and the number of banks with a cash balance change over time.

The simulation will stop when the file finishes.

The number of banks in deficit and the number of banks with a cash balance oscillates and this is determined by the operations that the banks effect. In particular you can observe that when the number of banks in deficit increases, the number of banks with a cash balance decrease and the sum corresponds to the number that you can see in the TOTAL NUMBER OF BANKS monitor.


THINGS TO TRY

Increasing the amount of money that the central bank can grant as loans, to the point at which (any/all) banks of the system (is/are) in deficit be reached?

Start with a MAXIMUM_AMOUNT_OF_LOANS_GRANTED_AS_THE_CENTRAL_BANK of zero, let the file be read and after, you can see the situation. Particularly you can see the number of banks in deficit, the number of banks in cash balance, the amount of liquidity in the system and the amount of deficit of the banks.

The project can do experiments with different amounts of loans granted as the central bank. It can be seen that, if you increases the quantity of money that the central bank introduces into the system, it will also increase the number of the banks with a cash balance, while it will be decreasing the number of the banks in deficit. This will also increase the general liquidity of the system.

The project can do experiments for every amount that can be selected in the slider.


EXTENDING THE MODEL

The model has necessarily simplified its subject area substantially, and assumes the central bank does not refuse any loans. The model therefore provides numerous opportunities for extension:

In the model all the operations among the banks are made in the order in which they are written in the file, in this way the banks make payments even if they are in deficit. The model could be changed to reflect a more realistic view where the banks could make the payments only if they have the necessary money to do it. Money could arrive at the bank, that has to make the payment through loans, reimbursed from the central bank or reimbursed from other banks in the system that have a cash balance.

Extending the model by adding this would make it more realistic.

The model also assumes that there aren't any costs. Even if the banks have to take on loan money they don't to pay any interest. The model could be changed to reflect a more realistic view. When a bank takes on a loan it should pay interest that changes according to the time it holds the money without returning it. If you add the condition that says that a bank can make payments only when it has the available cash and the banks have to pay interest to the central bank, with the interest changing according to the time for which the bank delays the payment.

Finally, certain significant changes can be made in the model by changing same procedure SETUP and by adding same procedures.