EconPapers    
Economics at your fingertips  
 

Fiscal and Monetary Policies in Complex Evolving Economies

Giovanni Dosi, Giorgio Fagiolo (), Mauro Napoletano and Andrea Roventini ()

No 40, INET Research Notes from Institute for New Economic Thinking (INET)

Abstract: In this paper we explore the e ffects of alternative combinations of fi scal and monetary policies under di fferent income distribution regimes. In particular, we aim at evaluating fiscal rules in economies subject to banking crises and deep recessions. We do so using an agent-based model populated by heterogeneous capital- and consumption-good firms, heterogeneous banks, workers/consumers, a Central Bank and a Government. We show that the model is able to reproduce a wide array of macro and micro empirical regularities, including stylised facts concerning nancial dynamics and banking crises. Simulation results suggest that the most appropriate policy mix to stabilise the economy requires unconstrained counter-cyclical fi scal policies, where automatic stabilisers are free to dampen business cycles fluctuations, and a monetary policy targeting also employment. Instead, "discipline-guided" fiscal rules such as the Stability and Growth Pact or the Fiscal Compact in the Eurozone always depress the economy, without improving public finances, even when escape clauses in case of recessions are considered. Consequently, austerity policies appear to be in general self-defeating. Furthermore, we show that the negative e ffects of austere fi scal rules are magni ed by conservative monetary policies focused on inflation stabilisation only. Finally, the e ffects of monetary and fiscal policies become sharper as the level of income inequality increases.

New Economics Papers: this item is included in nep-cmp, nep-mac and nep-mon
Date: 2014-02-14
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://ineteconomics.org/sites/inet.civicactions.n ... te-40-Dosi-et-al.pdf (application/pdf)

Related works:
Working Paper: Fiscal and monetary policies in complex evolving economies (2014) Downloads
Working Paper: Fiscal and Monetary Policies in Complex Evolving Economies (2014) Downloads
Working Paper: Fiscal and monetary policies in complex evolving economies (2014) Downloads
Working Paper: Fiscal and Monetary Policies in Complex Evolving Economies (2014) Downloads
Working Paper: Fiscal and monetary policies in complex evolving economies (2014) Downloads
Working Paper: Fiscal and Monetary Policies in Complex Evolving Economies (2014) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:thk:rnotes:40

Access Statistics for this paper

More papers in INET Research Notes from Institute for New Economic Thinking (INET)
Contact information at EDIRC.
Series data maintained by Enno Schröder ().

 
Page updated 2014-08-25
Handle: RePEc:thk:rnotes:40