Fiscal and monetary policies in complex evolving economies

Authored by Giorgio Fagiolo, Giovanni Dosi, Andrea Roventini, Mauro Napoletano, Tania Treibich

Date Published: 2015

DOI: 10.1016/j.jedc.2014.11.014

Sponsors: Institute for New Economic Thinking

Platforms: No platforms listed

Model Documentation: Other Narrative Mathematical description

Model Code URLs: Model code not found

Abstract

What is the most appropriate combination of fiscal and monetary policies in economies subject to banking crises and deep recessions? We study this issue using an agent-based model that is able to reproduce a wide array of macro- and micro-empirical regularities. Simulation results suggest that policy mixes associating unconstrained, counter-cyclical fiscal policy and monetary policy targeting employment is required to stabilise the economy. We also show that ``discipline-guided{''} fiscal rules can be self-defeating, as they depress the economy without improving public finances. Finally, we find that the effects of monetary and fiscal policies become sharper as the level of income inequality increases. (C) 2014 Elsevier B.V. All rights reserved.

Tags

Financial accelerator Network Model Power growth Interacting agents Macroeconomics Credit Recession Crises