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Budgetary rigour with stimulus in lean times: Policy advices from an agent-based model

Author

Listed:
  • Andrea Teglio

    () (Department of Economics, Universitat Jaume I, Castellón, Spain)

  • Andrea Mazzocchetti

    (DIME-CINEF, Università di Genova, Italy)

  • Linda Ponta

    () (DIME-CINEF, Università di Genova, Italy)

  • Marco Raberto

    () (DIME-CINEF, Università di Genova, Italy)

  • Silvano Cincotti

    () (DIME-CINEF, Università di Genova, Italy)

Abstract

The 2008 financial crisis, and the subsequent global recession, triggered a widespread economic and political debate on the proper policy combination to deal with the crisis and to prevent similar ones in the future. Probably, the main dispute has been around the use of fiscal instruments in order to foster growth while keeping public debt under control. The European Union, for instance, endorsed measures for fiscal consolidation but has been sharply criticized by several scholars as well as Nobel Laureates. This paper aims at contributing to this debate by presenting the outcomes of a computational study performed with the Eurace agent-based model. We set up an experiment with two base policy scenarios, i.e., stability and growth pact and fiscal compact, incrementally enriching them with complementary policies which relax fiscal rigidity and introduce quantitative easing. We are therefore able to compare eight policy combinations, spanning different degrees of fiscal and monetary expansion. Results show that budgetary rigour performs well if and only if some mechanisms of fiscal relaxation and monetary accommodation are considered during bad times; thus confirming in a richer and more realistic model setting the fundamental tenet of Keynesian economics about the importance of sustaining aggregate demand during recessions.

Suggested Citation

  • Andrea Teglio & Andrea Mazzocchetti & Linda Ponta & Marco Raberto & Silvano Cincotti, 2015. "Budgetary rigour with stimulus in lean times: Policy advices from an agent-based model," Working Papers 2015/07, Economics Department, Universitat Jaume I, Castellón (Spain).
  • Handle: RePEc:jau:wpaper:2015/07
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    References listed on IDEAS

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    Cited by:

    1. 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.
    2. Mazzocchetti, Andrea & Raberto, Marco & Teglio, Andrea & Cincotti, Silvano, 2017. "Securitisation and Business Cycle: An Agent-Based Perspective," MPRA Paper 76760, University Library of Munich, Germany.
    3. Giovanni Dosi & Andrea Roventini, 2017. "Agent-Based Macroeconomics and Classical Political Economy: Some Italian Roots," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 3(3), pages 261-283, November.
    4. Marco Raberto & Bulent Ozel & Linda Ponta & Andrea Teglio & Silvano Cincotti, 2016. "From financial instability to green finance: the role of banking and monetary policies in the Eurace model," Working Papers 2016/07, Economics Department, Universitat Jaume I, Castellón (Spain).

    More about this item

    Keywords

    fiscal policy; quantitative easing; financial stability; economic crisis; agent-based modelling;

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • G01 - Financial Economics - - General - - - Financial Crises
    • H12 - Public Economics - - Structure and Scope of Government - - - Crisis Management
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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