Monetary Policy and Large Crises in a Financial Accelerator Agent-Based Model

Federico Giri, Luca Riccetti, Alberto Russo and Mauro Gallegati

MPRA Paper from University Library of Munich, Germany

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: 2016-03-30
New Economics Papers: this item is included in nep-cba, nep-cmp, nep-hme, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/70371/1/MPRA_paper_70371.pdf original version (application/pdf)

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)
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: https://EconPapers.repec.org/RePEc:pra:mprapa:70371

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().