Fiscal and monetary policies in complex evolving economies

G. Dosi*, Giorgio Fagiolo, Mauro Napoletano, Andrea Roventini, Tania Treibich

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

110 Citations (Web of Science)

Abstract

What is the most appropriate combination of fiscal and monetary policies in economies subject to banking crises and deep recessions? We study this issue using an agent-based model that is able to reproduce a wide array of macro- and micro-empirical regularities. Simulation results suggest that policy mixes associating unconstrained, counter-cyclical fiscal policy and monetary policy targeting employment is required to stabilise the economy. We also show that "discipline-guided" fiscal rules can be self-defeating, as they depress the economy without improving public finances. Finally, we find that the effects of monetary and fiscal policies become sharper as the level of income inequality increases.
Original languageEnglish
Pages (from-to)166-189
JournalJournal of Economic Dynamics & Control
Volume52
DOIs
Publication statusPublished - Mar 2015

JEL classifications

  • c63 - "Computational Techniques; Simulation Modeling"
  • e32 - "Business Fluctuations; Cycles"
  • e60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
  • e52 - Monetary Policy
  • g21 - "Banks; Depository Institutions; Micro Finance Institutions; Mortgages"
  • o40 - Economic Growth and Aggregate Productivity: General

Keywords

  • Agent-based model
  • Fiscal policy
  • Monetary policy
  • Income inequality
  • Austerity policies

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