When firms buy corporate bonds: an agent-based approach to credit within firms

Recent trends in the market for corporate bonds -such as its increase in size, the significant presence of low-quality debt instruments and the trading activity of non-financial corporations- call for the need of an investigation of the possible implications on the real economy. Although the phenomenon is still minor, the present paper aims at giving some early insights concerning the introduction of a corporate bond market, where also nonfinancial firms can invest. To do so, we build on an existing macroeconomic agent-based model of the CATS tradition and we introduce the possibility for firms to raise money through an alternative credit channel, i.e., the corporate bond market- and the opportunity for households and firms to invest part of their financial wealth into a portfolio of Government bonds and corporate bonds. Experiments based on single runs or on 100 Monte Carlo simulations suggest that the introduction of a bond market may exacerbate existing crisis and recessions and that when firms buy bonds, inequality may escalate. To the best of our knowledge, this paper constitutes one of the first attempts to incorporate a corporate bond market into a macro ABM.