Budgetary rigour with stimulus in lean times: Policy advices from an agent-based model
Authored by Linda Ponta, Marco Raberto, Silvano Cincotti, Andrea Teglio, Andrea Mazzocchetti
Date Published: 2019
DOI: 10.1016/j.jebo.2017.09.016
Sponsors:
European Union
Platforms:
No platforms listed
Model Documentation:
Other Narrative
Mathematical description
Model Code URLs:
Model code not found
Abstract
The 2008 financial crisis, and the subsequent global recession,
triggered a wide-spread economic and political debate on the proper
policy combination to deal with the crisis and to prevent similar ones
in the future. Probably, the main dispute has been around the use of
fiscal instruments in order to foster growth while keeping public debt
under control. The European Union, for instance, endorsed
``austerity{''} measures for fiscal consolidation but has been sharply
criticized by several scholars. This paper aims at contributing to the
current debate by presenting the outcomes of a computational study
performed with the Eurace agent-based model. We set up an experiment
with two base policy scenarios, i.e., stability and growth pact and
fiscal compact, incrementally enriching them with complementary policies
which relax fiscal rigidity and introduce quantitative easing. Results
show that budgetary rigour performs well if and only if some mechanisms
of fiscal relaxation and monetary accommodation are considered during
bad times; thus confirming in a richer and more realistic model setting
the fundamental tenet of Keynesian economics about the importance of
sustaining aggregate demand during recessions. (C) 2017 Elsevier B.V.
All rights reserved.
Tags
Agent-based modelling
Financial Stability
information
fiscal policy
quantitative easing
investment
Credit
Markets
Flow
Prospect-theory
Real
Economic
crisis
Fiscal-policy