Monetary policy and large crises in a financial accelerator agent-based model
Federico Giri (),
Luca Riccetti (),
Alberto Russo and
Mauro Gallegati ()
Journal of Economic Behavior & Organization, 2019, vol. 157, issue C, 42-58
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. 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. A two-step computational approach is proposed which performs (i) a pattern search of “double dip” episodes and (ii) counter-factual simulations implementing unconventional monetary policy. 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: E32 E44 E58 C63 (search for similar items in EconPapers)
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Working Paper: Monetary Policy and Large Crises in a Financial Accelerator Agent-Based Model (2016)
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:eee:jeborg:v:157:y:2019:i:c:p:42-58
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