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

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Listed:
  • Stanislao Gualdi
  • Marco Tarzia
  • Francesco Zamponi
  • Jean-Philippe Bouchaud

Abstract

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.

Suggested Citation

  • Stanislao Gualdi & Marco Tarzia & Francesco Zamponi & Jean-Philippe Bouchaud, 2015. "Monetary Policy and Dark Corners in a stylized Agent-Based Model," Papers 1501.00434, arXiv.org, revised Jan 2016.
  • Handle: RePEc:arx:papers:1501.00434
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    File URL: http://arxiv.org/pdf/1501.00434
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    Cited by:

    1. Joeri Schasfoort & Antoine Godin & Dirk Bezemer & Alessandro Caiani & Stephen Kinsella, 2017. "Monetary Policy Transmission In A Macroeconomic Agent-Based Model," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 20(08), pages 1-35, December.
    2. Jean-Philippe Bouchaud & Stanislao Gualdi & Marco Tarzia & Francesco Zamponi, 2018. "Optimal inflation target: insights from an agent-based model," Post-Print hal-01768441, HAL.
    3. repec:zbw:ifweej:20187 is not listed on IDEAS
    4. repec:zbw:ifweej:201815 is not listed on IDEAS

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