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

Stanislao Gualdi (1) , Marco Tarzia (2) , Francesco Zamponi (3) , Jean-Philippe Bouchaud (4)

1 MICS - Mathématiques et Informatique pour la Complexité et les Systèmes
2 LPTMC - Laboratoire de Physique Théorique de la Matière Condensée
3 LPTENS - Laboratoire de Physique Théorique de l'ENS [École Normale Supérieure]
4 CFM - Capital Fund Management

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.

Mots clés: Agent-based Computational Economics

Domaines: Finance quantitative [q-fin.CP]; Economies et finances

Stanislao Gualdi, Marco Tarzia, Francesco Zamponi, Jean-Philippe Bouchaud. Monetary Policy and Dark Corners in a stylized Agent-Based Model. Journal of Economic Interaction and Coordination, 2016, 12 (3), pp.507-537. ⟨10.1007/s11403-016-0174-z⟩. ⟨hal-01370217⟩