Monetary policy experiments in an agent-based model with financial frictions

Authored by Domenico Delli Gatti, Saul Desiderio

Date Published: 2015

DOI: 10.1007/s11403-014-0123-7

Sponsors: European Union

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

Macroeconomic agent based models have been around for at least a decade, and they have been remarkably successful in replicating many empirical ``stylized facts{''}. Only a handful of papers, however, has explored the effects of monetary policy. In this paper we present an agent-based macroeconomic model where the interplay between credit market conditions and firms' balance sheets is key in the determination of endogenous fluctuations. We use the model as a simulation platform by which we perform several experiments of monetary policy. Simulations showed a clear nonneutrality of monetary policy, which finds its transmission mechanism in the credit channel. Besides, we also evaluated the performance of a monetary Authority whose reaction function was modelled according to a standard Taylor rule, which turns out to be quite successful as an effective macro-stabilization tool.

Tags

Business Fluctuations Fragility