Monetary policy and large crises in a financial accelerator agent-based model

Arbeitspapier

An accommodating monetary policy followed by a sudden increase of the short term interest rate often leads to a bubble burst and to an economic slowdown. Two examples are the Great Depression of 1929 and the Great Recession of 2008. Through the implementation of an Agent Based Model with a financial accelerator mechanism we are able to study the relationship between monetary policy and large scale crisis events. The main results can be summarized as follow: a) sudden and sharp increases of the policy rate can generate recessions; b) after a crisis, returning too soon and too quickly to a normal monetary policy regime can generate a \double dip" recession, while c) keeping the short term interest rate anchored to the zero lower bound in the short run can successfully avoid a further slowdown.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: FinMaP-Working Paper ; No. 65

Classification and Topics

• Classification: Wirtschaft ; Business Fluctuations; Cycles ; Financial Markets and the Macroeconomy ; Central Banks and Their Policies ; Computational Techniques; Simulation Modeling
• Subject: Monetary Policy ; Large Crises ; Agent Based Model ; Financial Accelerator ; Zero Lower Bound

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Giri, Federico ; Riccetti, Luca ; Russo, Alberto ; Gallegati, Mauro
• Event: Veröffentlichung
• (who): Kiel University, FinMaP - Financial Distortions and Macroeconomic Performance
• (where): Kiel
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/148064
• Last update: 10.03.2025, 11:44 AM CET