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