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

21 Pages Posted: 22 Jan 2015

See all articles by Stanislao Gualdi

Stanislao Gualdi

Capital Fund Management

Marco Tarzia

Université Paris VI Pierre et Marie Curie

Francesco Zamponi

École Normale Supérieure (ENS)

Jean-Philippe Bouchaud

Capital Fund Management

Date Written: January 21, 2015

Abstract

We generalise the stylised macroeconomic Agent-Based model introduced in our previous paper ("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 unemployment 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.

Keywords: agent-based computational economics, aggregative models, monetary policy, macroeconomics, cycles

JEL Classification: E52, C62, C63, E27, E37

Suggested Citation

Gualdi, Stanislao and Tarzia, Marco and Zamponi, Francesco and Bouchaud, Jean-Philippe, Monetary Policy and Dark Corners in a Stylized Agent-Based Model (January 21, 2015). Available at SSRN: https://ssrn.com/abstract=2553136 or http://dx.doi.org/10.2139/ssrn.2553136

Stanislao Gualdi (Contact Author)

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France

Marco Tarzia

Université Paris VI Pierre et Marie Curie ( email )

175 Rue du Chevaleret
Paris, 75013
France

Francesco Zamponi

École Normale Supérieure (ENS) ( email )

45 rue d’Ulm
Paris Cedex 05, F-75230
France

Jean-Philippe Bouchaud

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France
+33 1 49 49 59 20 (Phone)

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