An ABM model with developing country features: a preliminary approach to discuss fiscal and monetary policy

The Institute of Economics will hold a meeting of its Seminar Series on Monday, January 13, 2019: Esther Dwek, from the Federal University of Rio de Janeiro, will present the paper "An ABM model with developing country features: a preliminary approach to discuss fiscal and monetary policy"

Abstract:

The global financial crisis led to a crisis in mainstream macroeconomic theory and to questioning the economic policies implemented before and after the crisis. One of the most relevant controversies concerns the role of fiscal policy. In order to present a different theoretical approach and discuss the role of fiscal policy, in this paper, the authors present an agent based micro-macro multisectoral model to analyze fiscal policy in a complex evolutionary economy. We evaluate the impact of different fiscal rules in terms of short run fluctuations and long-term growth. In particular, the authors analyze the impact of a new fiscal rule that prevents any real growth of federal public expenditures for at least ten years in Brazil. Based on the simulation model, we compare 5 different combinations of fiscal policies on how they affect macro variables, such as GDP growth rates, GDP volatility and likelihood of crises. The authors also test how each fiscal policy combination reacts to an external shock. Results show that all scenarios imposing a tighter constraint to government spending present signs of self-defeating scal consolidation. On the other hand, unconstrained countercyclical policy prevents contagious effects of external crisis, leading to a better economic performance and reducing the likelihood of crises.