MONETARY POLICY and DEBT DEFLATION: SOME COMPUTATIONAL EXPERIMENTS

Chiarella, C; Di Guilmi, C

MONETARY POLICY and DEBT DEFLATION: SOME COMPUTATIONAL EXPERIMENTS

Chiarella, C Di Guilmi, C

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Publication Type:: Journal Article
Citation:: Macroeconomic Dynamics, 2017, 21 (1), pp. 214 - 242
Issue Date:: 2017-01-01

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Field	Value	Language
dc.contributor.author	Chiarella, C	en_US
dc.contributor.author	Di Guilmi, C https://orcid.org/0000-0001-7786-039X	en_US
dc.date.issued	2017-01-01	en_US
dc.identifier.citation	Macroeconomic Dynamics, 2017, 21 (1), pp. 214 - 242	en_US
dc.identifier.issn	1365-1005	en_US
dc.identifier.uri	http://hdl.handle.net/10453/124341
dc.description.abstract	© Cambridge University Press 2016. The paper presents an agent-based model to study the possible effects of different fiscal and monetary policies in the context of debt deflation. We introduce a modified Taylor rule that includes the financial position of firms as a target. Monte Carlo simulations provide a representation of the complex feedback effects generated by the interaction among the different transmission channels of monetary policy. The model also reproduces the evidence of low inflation during stock market booms and shows how it can lead to overinvestment and destabilize the system. The paper also investigates the possible reasons behind this stylized fact by testing different behavioral rules for the central bank. We find that, in a context of sticky prices and volatile expectations, endogenous credit creation can be identified as the main source of the divergent dynamics of prices in the real and financial sectors.	en_US
dc.relation.ispartof	Macroeconomic Dynamics	en_US
dc.relation.isbasedon	10.1017/S1365100515000450	en_US
dc.subject.classification	Economics	en_US
dc.title	MONETARY POLICY and DEBT DEFLATION: SOME COMPUTATIONAL EXPERIMENTS	en_US
dc.type	Journal Article
utslib.citation.volume	1	en_US
utslib.citation.volume	21	en_US
utslib.for	1401 Economic Theory	en_US
utslib.for	1402 Applied Economics	en_US
utslib.for	1403 Econometrics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Economics Discipline
utslib.copyright.status	closed_access
pubs.issue	1	en_US
pubs.publication-status	Published	en_US
pubs.volume	21	en_US

Abstract:

© Cambridge University Press 2016. The paper presents an agent-based model to study the possible effects of different fiscal and monetary policies in the context of debt deflation. We introduce a modified Taylor rule that includes the financial position of firms as a target. Monte Carlo simulations provide a representation of the complex feedback effects generated by the interaction among the different transmission channels of monetary policy. The model also reproduces the evidence of low inflation during stock market booms and shows how it can lead to overinvestment and destabilize the system. The paper also investigates the possible reasons behind this stylized fact by testing different behavioral rules for the central bank. We find that, in a context of sticky prices and volatile expectations, endogenous credit creation can be identified as the main source of the divergent dynamics of prices in the real and financial sectors.

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http://hdl.handle.net/10453/124341