Fiscal and monetary policies in complex evolving economies

G. Dosi; Giorgio Fagiolo; Mauro Napoletano; Andrea Roventini; Tania Treibich

doi:10.1016/j.jedc.2014.11.014

Fiscal and monetary policies in complex evolving economies

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

^*Corresponding author for this work

Macro, International & Labour Economics

Research output: Contribution to journal › Article › Academic › peer-review

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 language	English
Pages (from-to)	166-189
Journal	Journal of Economic Dynamics & Control
Volume	52
DOIs	https://doi.org/10.1016/j.jedc.2014.11.014
Publication status	Published - 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

Access to Document

10.1016/j.jedc.2014.11.014

Cite this

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title = "Fiscal and monetary policies in complex evolving economies",

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.",

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author = "G. Dosi and Giorgio Fagiolo and Mauro Napoletano and Andrea Roventini and Tania Treibich",

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language = "English",

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journal = "Journal of Economic Dynamics & Control",

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AU - Dosi, G.

AU - Fagiolo, Giorgio

AU - Napoletano, Mauro

AU - Roventini, Andrea

AU - Treibich, Tania

PY - 2015/3

Y1 - 2015/3

N2 - 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.

AB - 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.

KW - Agent-based model

KW - Fiscal policy

KW - Monetary policy

KW - Income inequality

KW - Austerity policies

U2 - 10.1016/j.jedc.2014.11.014

DO - 10.1016/j.jedc.2014.11.014

M3 - Article

SN - 0165-1889

VL - 52

SP - 166

EP - 189

JO - Journal of Economic Dynamics & Control

JF - Journal of Economic Dynamics & Control

ER -