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Monetary Policy and Dark Corners in a stylized Agent-Based Model | | Stanislao Gualdi
; Marco Tarzia
; Francesco Zamponi
; Jean-Philippe Bouchaud
; | | Date: |
2 Jan 2015 | | Abstract: | We generalise the stylised macroeconomic Agent-Based model introduced in
"Tipping Points in Macroeconomic Agent Based Models" [JEDC 50, 29-61 (2015)],
with the aim of investigating the role and efficacy of monetary policy of a
’Central Bank’, that sets the interest rate such as to steer the economy
towards a prescribed inflation and unemployment level. Our major finding is
that provided its policy is not too aggressive (in a sense detailed in the
paper) the Central Bank is successful in achieving its goals. However, the
existence of different equilibrium states of the economy, separated by phase
boundaries (or "dark corners"), can cause the monetary policy itself to trigger
instabilities and be counter-productive. In other words, the Central Bank must
navigate in a narrow window: too little is not enough, too much leads to
instabilities and wildly oscillating economies. This conclusion strongly
contrasts with the prediction of DSGE models. | | Source: | arXiv, 1501.0434 | | Services: | Forum | Review | PDF | Favorites | |
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