2012/03 | LEM Working Paper Series | ||||||||||||||||
Income Distribution, Credit and Fiscal Policies in an Agent-Based Keynesian Model |
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Giovanni Dosi, Giorgio Fagiolo, Mauro Napoletano, Andrea Roventini |
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Keywords | |||||||||||||||||
agent-based Keynesian models, multiple equilibria, fiscal and monetary policies, income distribution, transmission mechanisms, credit constraints
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JEL Classifications | |||||||||||||||||
E32, E44, E51, E52, E62
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Abstract | |||||||||||||||||
This work studies the interactions between income distribution and
monetary and fiscal policies in terms of ensuing dynamics of macro
variables (GDP growth, unemployment, etc.) on the grounds of an
agent-based Keynesian model. The direct ancestor of this work is the
"Keynes meeting Schumpeter" formalism presented in Dosi et
al. (2010). To that model, we add a banking sector and a monetary
authority setting interest rates and credit lending conditions. The
model combines Keynesian mechanisms of demand generation, a
"Schumpeterian" innovation-fueled process of growth and Minskian
credit dynamics. The robustness of the model is checked against its
capability to jointly account for a large set of empirical
regularities both at the micro level and at the macro one. The model
is able to catch salient features underlying the current as well as
previous recessions, the impact of financial factors and the role in
them of income distribution. We find that different income
distribution regimes heavily affect macroeconomic performance: more
unequal economies are exposed to more severe business cycles
fluctuations, higher unemployment rates, and higher probability of
crises. On the policy side, fiscal policies do not only dampen
business cycles, reduce unemployment and the likelihood of
experiencing a huge crisis. In some circumstances they also affect
positively long-term growth. Further, the more income distribution is
skewed toward profits, the greater the effects of fiscal
policies. About monetary policy, we find a strong non-linearity in the
way interest rates affect macroeconomic dynamics: in one "regime" with
low rates, changes in interest rates are ineffective up to a threshold
beyond which increasing the interest rate implies smaller output
growth rates and larger output volatility, unemployment and likelihood
of crises.
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