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

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  • Domenico Gatti
  • Saul Desiderio

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

Suggested Citation

  • Domenico Gatti & Saul Desiderio, 2015. "Monetary policy experiments in an agent-based model with financial frictions," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(2), pages 265-286, October.
    • Handle: RePEc:spr:jeicoo:v:10:y:2015:i:2:p:265-286
    DOI: 10.1007/s11403-014-0123-7
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    References listed on IDEAS

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    Cited by:

    1. Ciola, Emanuele & Turco, Enrico & Gurgone, Andrea & Bazzana, Davide & Vergalli, Sergio & Menoncin, Francesco, 2023. "Enter the MATRIX model:a Multi-Agent model for Transition Risks with application to energy shocks," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    2. Li, Xi Hao & Gallegati, Mauro, 2015. "Sectoral Imbalance in Two-Sector Economy with Mobility Constraint and Firm Migration," MPRA Paper 66002, University Library of Munich, Germany.
    3. Wieland, Volker & Binder, Michael & Lieberknecht, Philipp & Quintana, Jorge, 2017. "Model Uncertainty in Macroeconomics: On the Implications of Financial Frictions," CEPR Discussion Papers 12013, C.E.P.R. Discussion Papers.
    4. Chen, Siyan & Desiderio, Saul, 2018. "What moves the Beveridge curve and the Phillips curve: An agent-based analysis," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-30.
    5. Siyan Chen & Saul Desiderio, 2023. "An agent-based framework for the analysis of the macroeconomic effects of population aging," Journal of Evolutionary Economics, Springer, vol. 33(2), pages 393-427, April.
    6. Ciola, Emanuele & Turco, Enrico & Gurgone, Andrea & Bazzana, Davide & Vergalli, Sergio & Menoncin, Francesco, 2022. "Charging the macroeconomy with an energy sector: an agent-based model," FEEM Working Papers 319877, Fondazione Eni Enrico Mattei (FEEM).
    7. Michel Alexandre & Gilberto Tadeu Lima, 2020. "Combining monetary policy and prudential regulation: an agent-based modeling approach," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 15(2), pages 385-411, April.
    8. Giorgio Fagiolo & Andrea Roventini, 2017. "Macroeconomic Policy in DSGE and Agent-Based Models Redux: New Developments and Challenges Ahead," Journal of Artificial Societies and Social Simulation, Journal of Artificial Societies and Social Simulation, vol. 20(1), pages 1-1.
    9. Enrico Turco & Davide Bazzana & Massimiliano Rizzati & Emanuele Ciola & Sergio Vergalli, 2022. "Energy price shocks and stabilization policies in a multi-agent macroeconomic model for the Euro Area," Working Papers 2022.25, Fondazione Eni Enrico Mattei.
    10. Turco, Enrico & Bazzana, Davide & Rizzati, Massimiliano & Ciola, Emanuele & Vergalli, Sergio, 2023. "Energy price shocks and stabilization policies in the MATRIX model," Energy Policy, Elsevier, vol. 177(C).
    11. Severin Reissl, 2022. "Fiscal multipliers, expectations and learning in a macroeconomic agent‐based model," Economic Inquiry, Western Economic Association International, vol. 60(4), pages 1704-1729, October.
    12. Chen, Siyan & Desiderio, Saul, 2020. "Job duration and inequality," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 14, pages 1-27.
    13. repec:hal:spmain:info:hdl:2441/dcditnq6282sbu1u151qe5p7f is not listed on IDEAS
    14. Andrea Mazzocchetti & Eliana Lauretta & Marco Raberto & Andrea Teglio & Silvano Cincotti, 2020. "Systemic financial risk indicators and securitised assets: an agent-based framework," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 15(1), pages 9-47, January.
    15. Papadopoulos, Georgios, 2019. "Income inequality, consumption, credit and credit risk in a data-driven agent-based model," Journal of Economic Dynamics and Control, Elsevier, vol. 104(C), pages 39-73.
    16. Caner Ates & Dietmar Maringer, 2021. "A Parsimonious Macroeconomic ABM for Labor Market Regulations," LEM Papers Series 2021/46, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    17. Giorgio Fagiolo & Andrea Roventini, 2016. "Macroeconomic Policy in DGSE and Agent-Based Models Redux," Working Papers hal-03459348, HAL.
    18. Yuri Biondi & Feng Zhou, 2019. "Interbank credit and the money manufacturing process: a systemic perspective on financial stability," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 14(3), pages 437-468, September.
    19. Lilian Rolim & Laura Carvalho & Dany Lang, 2023. "Monetary policy rules and the inequality-augmented Phillips Curve," Working Papers, Department of Economics 2023_06, University of São Paulo (FEA-USP).
    20. Andrew G. Haldane & Arthur E. Turrell, 2019. "Drawing on different disciplines: macroeconomic agent-based models," Journal of Evolutionary Economics, Springer, vol. 29(1), pages 39-66, March.
    21. Assenza, Tiziana & Cardaci, Alberto & Delli Gatti, Domenico & Grazzini, Jakob, 2018. "Policy experiments in an agent-based model with credit networks," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-17.
    22. Chen, Siyan & Desiderio, Saul, 2018. "Computational evidence on the distributive properties of monetary policy," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-32.
    23. Papadopoulos, Georgios, 2020. "Probing the mechanism: lending rate setting in a data-driven agent-based model," MPRA Paper 102749, University Library of Munich, Germany.

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    More about this item

    Keywords

    Agent-based models; Financial fragility; Monetary policy; Taylor rule; C63; E32; E52;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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