Monetary policy and large crises in a financial accelerator agent-based model

Federico Giri, Luca Riccetti, Alberto Russo and Mauro Gallegati

No 65, FinMaP-Working Papers from Collaborative EU Project FinMaP - Financial Distortions and Macroeconomic Performance: Expectations, Constraints and Interaction of Agents

Abstract: An accommodating monetary policy followed by a sudden increase of the short term interest rate often leads to a bubble burst and to an economic slowdown. Two examples are the Great Depression of 1929 and the Great Recession of 2008. Through the implementation of an Agent Based Model with a financial accelerator mechanism we are able to study the relationship between monetary policy and large scale crisis events. The main results can be summarized as follow: a) sudden and sharp increases of the policy rate can generate recessions; b) after a crisis, returning too soon and too quickly to a normal monetary policy regime can generate a \double dip" recession, while c) keeping the short term interest rate anchored to the zero lower bound in the short run can successfully avoid a further slowdown.

Keywords: Monetary Policy; Large Crises; Agent Based Model; Financial Accelerator; Zero Lower Bound (search for similar items in EconPapers)
JEL-codes: C63 E32 E44 E58 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-cba, nep-cmp, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Related works:
Journal Article: Monetary policy and large crises in a financial accelerator agent-based model (2019)
Working Paper: Monetary Policy and Large Crises in a Financial Accelerator Agent-Based Model (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:fmpwps:65

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