Agent-based financial markets and New Keynesian macroeconomics: A synthesis

Matthias Lengnick and Hans-Werner Wohltmann

No 2010-10, Economics Working Papers from Christian-Albrechts-University of Kiel, Department of Economics

Abstract: We combine a simple agent-based model of financial markets with a standard New Keynesian macroeconomic model via two straightforward channels. The result is a macroeconomic model that allows for the endogenous development of stock price bubbles. Even with such a simplistic comprehensive model, we can show that the behavioral foundations of the stock market exert important influence on the macroeconomy, e.g. they change the impulse-response functions of macroeconomic variables significantly. We also analyze financial market transaction taxes as well as asset price bubble deflating monetary policy, and find that both can be used to reduce volatility and distortion of the macroeconomic aggregates.

Keywords: agent-based financial markets; New Keynesian macroeconomics; stock market; transaction tax; Taylor rule (search for similar items in EconPapers)
JEL-codes: E0 E52 G12 G18 (search for similar items in EconPapers)
Date: 2010
New Economics Papers: this item is included in nep-cba and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

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Related works:
Journal Article: Agent-based financial markets and New Keynesian macroeconomics: a synthesis (2013)
Working Paper: Agent-based financial markets and New Keynesian macroeconomics: A synthesis (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:cauewp:201010

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