Budgetary rigour with stimulus in lean times: Policy advices from an agent-based model

Andrea Teglio, Andrea Mazzocchetti (), Linda Ponta (), Marco Raberto and Silvano Cincotti ()
Additional contact information
Linda Ponta: DIME-CINEF, Università di Genova, Italy

No 2015/07, Working Papers from Economics Department, Universitat Jaume I, Castellón (Spain)

Abstract: The 2008 financial crisis, and the subsequent global recession, triggered a widespread 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 measures for fiscal consolidation but has been sharply criticized by several scholars as well as Nobel Laureates. This paper aims at contributing to this 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. We are therefore able to compare eight policy combinations, spanning different degrees of fiscal and monetary expansion. 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.

Keywords: fiscal policy; quantitative easing; financial stability; economic crisis; agent-based modelling (search for similar items in EconPapers)
JEL-codes: C63 E63 G01 H12 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2015
New Economics Papers: this item is included in nep-cmp, nep-eec and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

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Journal Article: Budgetary rigour with stimulus in lean times: Policy advices from an agent-based model (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:jau:wpaper:2015/07

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