Stabilization Policies and Long Term Growth: Policy Implications from an Agent-Based Macroeconomic Model

40 Pages Posted: 19 Jun 2015

See all articles by Philipp Harting

Philipp Harting

Bielefeld University - Faculty of Business Administration and Economics

Date Written: June 18, 2015

Abstract

Do fiscal stabilization policies affect the long-term growth of the economy? If so, are the long-term effects growth-enhancing or growth-reducing? These questions have again become relevant to the political and academic debate since governments have been forced to spend considerable funds for economic stimulus packages as a response to the recent economic crisis. The answers provided by the economic literature are inconclusive. But a general observation is that, while the theoretical literature has emphasized the importance of structural issues as, e.g., the modeling approach of endogeneous technological change, less attention has been paid to an elaborate design of the considered fiscal stabilization policies. This paper uses a closed agent-based macroeconomic model that generates endgenous business cycles to emphasize the role of the policy design for long-term growth effects of stabilization policies. By comparing a demand-oriented consumption policy and two different investment subsidizing policies, we can show that the considered policies are equally successful in smoothing the business cycle, but have different implications for the medium and long-term growth of the economy. Hence, not only modeling assumptions as stressed by the literature but also the concrete implementation of the policy seems to be important for the analysis of long-term effects of stabilization policies.

Keywords: Business cycle; long-term growth; stabilization policy; agent-based model

JEL Classification: C63, E32, O33

Suggested Citation

Harting, Philipp, Stabilization Policies and Long Term Growth: Policy Implications from an Agent-Based Macroeconomic Model (June 18, 2015). Bielefeld Working Papers in Economics and Management No. 06-2015, Available at SSRN: https://ssrn.com/abstract=2620145 or http://dx.doi.org/10.2139/ssrn.2620145

Philipp Harting (Contact Author)

Bielefeld University - Faculty of Business Administration and Economics ( email )

Universitätsstraße 25
Bielefeld, 33615
Germany

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