Monetary Policy in a Non‐representative Agent Economy: A Survey

Brzoza‐Brzezina, Michał; Kolasa, Marcin; Koloch, Grzegorz; Makarski, Krzysztof; Rubaszek, Michał

doi:10.1111/j.1467-6419.2011.00710.x

Cited by 9 publications

(4 citation statements)

References 157 publications

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“…By contrast a recent literature is developing macroeconomics from the study of average consumption, output and inputs involving the interaction of these representative households and firms, to the study of the entire distribution of these variables. Recent insightful surveys of these developments is provided by Heathcote et al (2009) and Brzoza‐Brzezina et al (2011).…”

Section: Towards a Common Modelling Methodologymentioning

confidence: 99%

Monetary policy in an uncertain world: probability models and the design of robust monetary rules

Levine

2012

Indian Growth and Development Review

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The past forty years or so has seen a remarkable transformation in macro-models used by central banks, policymakers and forecasting bodies. This papers describes this transformation from reduced-form behavioural equations estimated separately, through to contemporary micro-founded dynamic stochastic general equilibrium (DSGE) models estimated by systems methods. In particular by treating DSGE models estimated by Bayesian-Maximum-Likelihood methods I argue that they can be considered as probability models in the sense described by Sims (2007) and be used for risk-assessment and policy design. This is true for any one model, but with a range of models on offer it is possible also to design interest rate rules that are simple and robust across the rival models and across the distribution of parameter estimates for each of these rivals as in . After making models better in a number of important dimensions, a possible road ahead is to consider rival models as being distinguished by the model of expectations. This would avoid becoming 'a prisoner of a single system' at least with respect to expectations formation where, as I argue, there is relatively less consensus on the appropriate modelling strategy.JEL Classification: E52, E37, E58

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Section: Towards a Common Modelling Methodologymentioning

confidence: 99%

Monetary policy in an uncertain world: probability models and the design of robust monetary rules

Levine

2012

Indian Growth and Development Review

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“…See Brzoza‐Brzezina et al . () and Deutsche Bundesbank () for earlier surveys of this literature. The present survey not only covers more recent empirical work and includes studies on the impact of macroprudential policies on inequality, but also discusses recent theoretical heterogeneous agents models examining how inequality affects the transmission of central bank policies.…”

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confidence: 99%

Central Bank Policies and Income and Wealth Inequality: A Survey

Colciago

Samarina

Haan

2019

Journal of Economic Surveys

142

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This paper reviews recent research on the relationship between central bank policies and inequality. A new paradigm which integrates sticky‐prices, incomplete markets, and heterogeneity among households is emerging, which allows for the joint study of how inequality shapes macroeconomic aggregates and how macroeconomic shocks and policies affect inequality. The new paradigm features multiple distributional channels of monetary policy. Most empirical studies, however, analyze each potential channel of redistribution in isolation. Our review suggests that empirical research on the effects of conventional monetary policy on income and wealth inequality yields mixed findings, although there seems to be a consensus that higher inflation, at least above some threshold, increases inequality. In contrast to common wisdom, conclusions concerning the impact of unconventional monetary policies on inequality are also not clear cut. To better understand policy effects on inequality, future research should focus on the estimation of General Equilibrium models with heterogeneous agents.

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“…Both groups of researchers, working on the DSGE models and ABM models respectively have recognised the need to consider heterogeneity of the economy in order to analyse the optimality of policies as well as welfare implications. The heterogeneity of agents in the ABM approach is, however, understood differently than in DSGE models with heterogeneous agents [57][58][59]. In the DSGE models with heterogeneous agents, the discontinuation of the assumption of a representative agent is made primarily by allowing for idiosyncratic shocks and by removing the assumption of completeness of asset markets.…”

Section: Comparison Of the Abm And Dsge-3d Modelmentioning

confidence: 99%

Macroprudential Policy in a Heterogeneous Environment—An Application of Agent-Based Approach in Systemic Risk Modelling

Kaszowska-Mojsa

Pipień

2020

Entropy

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Assessment of welfare effects of macroprudential policy seems the most important application of the Dynamic Stochastic General Equilibrium (DSGE) framework of macro-modelling. In particular, the DSGE-3D model, with three layers of default (3D), was developed and used by the European Systemic Risk Board and European Central Bank as a reference tool to formally model the financial cycle as well as to analyze effects of macroprudential policies. Despite the extreme importance of incorporating financial constraints in Real Business Cycle (RBC) models, the resulting DSGE-3D construct still embraces the representative agent idea, making serious analyses of diversity of economic entities impossible. In this paper, we present an alternative to DSGE modelling that seriously departs from the assumption of the representativeness of agents. Within an Agent Based Modelling (ABM) framework, we build an environment suitable for performing counterfactual simulations of the impact of macroprudential policy on the economy, financial system and society. We contribute to the existing literature by presenting an ABM model with broad insight into heterogeneity of agents. We show the stabilizing effects of macroprudential policies in the case of economic or financial distress.

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Monetary Policy in a Non‐representative Agent Economy: A Survey

Cited by 9 publications

References 157 publications

Monetary policy in an uncertain world: probability models and the design of robust monetary rules

Monetary policy in an uncertain world: probability models and the design of robust monetary rules

Central Bank Policies and Income and Wealth Inequality: A Survey

Macroprudential Policy in a Heterogeneous Environment—An Application of Agent-Based Approach in Systemic Risk Modelling

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