Complex interplay between monetary and fiscal policies in a real economy model

Fausto Cavalli, Ahmad Naimzada and Nicolò Pecora

Chaos, Solitons & Fractals, 2019, vol. 128, issue C, 318-330

Abstract: In this paper we consider a nonlinear model for the real economy described by a multiplier–accelerator setup. The model comprises the government sector, which influences the output dynamics by means of the fiscal policy, and the money market, where the money supply depends upon the fluctuations in the economic activity. Through rigorous analytical tools combined with numerical simulations, we investigate the stability conditions of the unique steady state and the emergence of different kinds of endogenous dynamics, which are the results of the action of the fiscal and the monetary policy through their reactivity degrees. Such policies, if properly tuned, can lead the economy toward the desired full employment target but, on the other hand, can also generate endogenous fluctuations in the pace of the economic activity, associated with the occurrence of closed invariant curves and multistability phenomena.

Keywords: Nonlinear dynamics; Monetary and fiscal policies; Bifurcations; Multistability (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:chsofr:v:128:y:2019:i:c:p:318-330

DOI: 10.1016/j.chaos.2019.08.011

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