Fiscal and monetary policies in complex evolving economies |
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| Affiliation: | 1. Department of Business Administration and Economics, Bielefeld University, PO Box 100131, Bielefeld 33501, Germany;2. Center for Mathematical Economics, Bielefeld University, Germany;3. Department of Law and Economics, Technische Universität Darmstadt, Germany;1. University of Naples “Parthenope”, Department of Business and Economics, Via Parisi 13, Naples 80133, Italy;2. Institute of Economics (LEM), Scuola Superiore Sant’Anna, Piazza Martiri della Libertá 33, I-56127 Pisa, Italy;4. Sciences Po, OFCE, 60 rue Dostoïevski - 06902 Sophia Antipolis, France;5. EMbeDS and Institute of Economics (LEM), Scuola Superiore Sant’Anna, Piazza Martiri della Libertá 33, I-56127 Pisa, Italy |
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| 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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| Keywords: | Agent-based model Fiscal policy Monetary policy Income inequality Austerity policies |
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