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

Author

Listed:
  • Stanislao Gualdi

    (MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec)

  • Marco Tarzia

    (LPTMC - Laboratoire de Physique Théorique de la Matière Condensée - UPMC - Université Pierre et Marie Curie - Paris 6 - CNRS - Centre National de la Recherche Scientifique)

  • Francesco Zamponi

    (LPTENS - Laboratoire de Physique Théorique de l'ENS [École Normale Supérieure] - FRDPENS - Fédération de recherche du Département de physique de l'Ecole Normale Supérieure - ENS Paris - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique - UPMC - Université Pierre et Marie Curie - Paris 6 - CNRS - Centre National de la Recherche Scientifique)

  • Jean-Philippe Bouchaud

    (CFM - Capital Fund Management - Capital Fund Management)

Abstract

We generalise the stylised macroeconomic Agent-Based model introduced in our previous paper [1], 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 employment 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.

Suggested Citation

  • Stanislao Gualdi & Marco Tarzia & Francesco Zamponi & Jean-Philippe Bouchaud, 2016. "Monetary Policy and Dark Corners in a stylized Agent-Based Model," Post-Print hal-01370217, HAL.
    • Handle: RePEc:hal:journl:hal-01370217
    DOI: 10.1007/s11403-016-0174-z
    Note: View the original document on HAL open archive server: https://centralesupelec.hal.science/hal-01370217
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    Citations

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    Cited by:

    1. Joeri Schasfoort & Antoine Godin & Dirk Bezemer & Alessandro Caiani & Stephen Kinsella, 2017. "Monetary Policy Transmission In A Macroeconomic Agent-Based Model," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 20(08), pages 1-35, December.
    2. Nur Khairlida Muhamad Khair & Khai Ern Lee & Mazlin Mokhtar, 2021. "Community-Based Monitoring in the New Normal: A Strategy for Tackling the COVID-19 Pandemic in Malaysia," IJERPH, MDPI, vol. 18(13), pages 1-22, June.
    3. Krug, Sebastian, 2018. "The interaction between monetary and macroprudential policy: Should central banks 'lean against the wind' to foster macro-financial stability?," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-69.
    4. Jean-Philippe Bouchaud & Stanislao Gualdi & Marco Tarzia & Francesco Zamponi, 2018. "Optimal inflation target: insights from an agent-based model," Post-Print hal-01768441, HAL.
    5. Dessertaine, Théo & Moran, José & Benzaquen, Michael & Bouchaud, Jean-Philippe, 2022. "Out-of-equilibrium dynamics and excess volatility in firm networks," Journal of Economic Dynamics and Control, Elsevier, vol. 138(C).
    6. Bouchaud, Jean-Philippe & Gualdi, Stanislao & Tarzia, Marco & Zamponi, Francesco, 2018. "Optimal inflation target: Insights from an agent-based model," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 12, pages 1-27.

    More about this item

    Keywords

    Agent-based Computational Economics;

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