Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5098184 | Journal of Economic Dynamics and Control | 2016 | 18 Pages |
Abstract
This article presents a macro-finance-interaction model that integrates a NKM with bounded rationality and an agent-based financial market model. We derive four interactive channels between the two sectors where two channels are strictly microfounded. We analyze the impact of the different channels on economic stability and derive optimal (conventional and unconventional) monetary policy rules. We find that coefficients of optimal Taylor rules do not significantly change if financial market stabilization becomes part of the central bank׳s objective function. Additionally, we show that rule-based, backward-looking monetary policy creates huge instabilities if expectations are boundedly rational. Our model is externally validated by showing that it generates fat tailed output growth rates.
Related Topics
Physical Sciences and Engineering
Mathematics
Control and Optimization
Authors
Matthias Lengnick, Hans-Werner Wohltmann,