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Monetary Policy and Dark Corners in a stylized Agent-Based Model

Listed author(s):
  • Stanislao Gualdi
  • Marco Tarzia
  • Francesco Zamponi
  • Jean-Philippe Bouchaud
Registered author(s):

    We extend in a minimal way the stylized model introduced in in "Tipping Points in Macroeconomic Agent Based Models" [JEDC 50, 29-61 (2015)], with the aim of investigating the role and efficacy of monetary policy of a `Central Bank' that sets the interest rate such as to steer the economy towards a prescribed inflation and employment level. Our major finding is that provided its policy is not too aggressive (in a sense detailed in the paper) the Central Bank is successful in achieving its goals. However, the existence of different equilibrium states of the economy, separated by phase boundaries (or "dark corners"), can cause the monetary policy itself to trigger instabilities and be counter-productive. In other words, the Central Bank must navigate in a narrow window: too little is not enough, too much leads to instabilities and wildly oscillating economies. This conclusion strongly contrasts with the prediction of DSGE models.

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    File URL: http://arxiv.org/pdf/1501.00434
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    Paper provided by arXiv.org in its series Papers with number 1501.00434.

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    Date of creation: Jan 2015
    Date of revision: Jan 2016
    Handle: RePEc:arx:papers:1501.00434
    Contact details of provider: Web page: http://arxiv.org/

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