Monetary policy experiments in an agent-based model with financial frictions

Domenico Delli Gatti and Saul Desiderio

Journal of Economic Interaction and Coordination, 2015, vol. 10, issue 2, 265-286

Abstract: Macroeconomic agent based models have been around for at least a decade, and they have been remarkably successful in replicating many empirical “stylized facts”. Only a handful of papers, however, has explored the effects of monetary policy. In this paper we present an agent-based macroeconomic model where the interplay between credit market conditions and firms’ balance sheets is key in the determination of endogenous fluctuations. We use the model as a simulation platform by which we perform several experiments of monetary policy. Simulations showed a clear nonneutrality of monetary policy, which finds its transmission mechanism in the credit channel. Besides, we also evaluated the performance of a monetary Authority whose reaction function was modelled according to a standard Taylor rule, which turns out to be quite successful as an effective macro-stabilization tool. Copyright Springer-Verlag Berlin Heidelberg 2015

Keywords: Agent-based models; Financial fragility; Monetary policy; Taylor rule; C63; E32; E52 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (41)

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Persistent link: https://EconPapers.repec.org/RePEc:spr:jeicoo:v:10:y:2015:i:2:p:265-286

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DOI: 10.1007/s11403-014-0123-7

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