AN AGENT-BASED MODEL OF THE FEDERAL RESERVE AS CORPORATE BOND MARKET REGULATOR

In today's global financial system, a wide range of regulators are focused on ensuring resilient markets. The Federal Reserve is among the most influential financial regulators in the world. The Fed is responsible for formulating monetary policy, pursing a so-called dual mandate with the aim of maintaining a target inflation rate and full employment. The Great Recession and subsequent global pandemic have ushered in a new era with global central banks taking unprecedented actions, extending emergency liquidity to a wide range of financial intermediaries and even directly intervening in markets. This paper focuses on using agent-based modeling (ABM) and simulation to better understand financial crisis dynamics. The overall aim is to show the promise of ABM approaches for evaluating regulatory policies, using the US corporate bond market as a case study. In particular, development of a Fed regulatory agent is guided by the real-world Corporate Bond Market Distress Index.