Monetary Policy and Dark Corners in a stylized Agent-Based Model

Stanislao Gualdi, Marco Tarzia (), Francesco Zamponi () and Jean-Philippe Bouchaud ()
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Stanislao Gualdi: MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec
Marco Tarzia: LPTMC - Laboratoire de Physique Théorique de la Matière Condensée - UPMC - Université Pierre et Marie Curie - Paris 6 - CNRS - Centre National de la Recherche Scientifique
Francesco Zamponi: LPTENS - Laboratoire de Physique Théorique de l'ENS [École Normale Supérieure] - FRDPENS - Fédération de recherche du Département de physique de l'Ecole Normale Supérieure - ENS Paris - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique - UPMC - Université Pierre et Marie Curie - Paris 6 - CNRS - Centre National de la Recherche Scientifique
Jean-Philippe Bouchaud: CFM - Capital Fund Management

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Abstract: We generalise the stylised macroeconomic Agent-Based model introduced in our previous paper [1], 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 employment 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.

Keywords: Agent-based; Computational; Economics (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cmp, nep-mac and nep-mon
Note: View the original document on HAL open archive server: https://centralesupelec.hal.science/hal-01370217v1
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Citations: View citations in EconPapers (6)

Published in Journal of Economic Interaction and Coordination, 2016, 12 (3), pp.507-537. ⟨10.1007/s11403-016-0174-z⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01370217

DOI: 10.1007/s11403-016-0174-z

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