Inequality and Monetary Policy with ABM/Alberto RUSSO

Описание: Inequality and Monetary Policy with ABM
Alberto RUSSO (Department of Economics, Universitat Jaume I)

CCSS School on Computational Social Science
Agent-Based Models (ABM) in Economics
Friday, January 20, 2023

During the last two decades, there has been a blossoming of agent-based applications to macroeconomic issues. There is a variety of macro ABMs, from simple ones to large-scale multi-country models. This approach represents an alternative to DSGE models for both policy analysis and forecasting. While large-scale calibrated models could be required for an accurate forecasting, small-scale models are very useful for reproducing relevant stylized facts as well as for policy analysis. We design a minimal macro ABM to study how income inequality affects monetary policy through the inequality-household debt channel. We find that when inequality meets financial liberalization, a leaning against-the-wind strategy can preserve financial stability at the cost of high unemployment, whereas an accommodative strategy, i.e. lowering the policy rate, can dampen the fall of aggregate demand at the cost of larger financial leverage (as under the 'Greenspan put'). We conclude that inequality may constrain the central bank, even when it is not explicitly targeted.