Monetary policy experiments in an agent-based model with financial frictions

Macroeconomic agent based models have been around for at least a decade,\r\nand they have been remarkably successful in replicating many empirical “stylized\r\nfacts”. Only a handful of papers, however, has explored the effects of monetary policy.\r\nIn this paper we present an agent-based macroeconomic model where the interplay\r\nbetween credit market conditions and firms’ balance sheets is key in the determination\r\nof endogenous fluctuations. We use the model as a simulation platform by which we\r\nperform several experiments of monetary policy. Simulations showed a clear nonneutrality of monetary policy, which finds its transmission mechanism in the credit channel. Besides, we also evaluated the performance of a monetary Authority whose reaction function was modelled according to a standard Taylor rule, which turns out\r\nto be quite successful as an effective macro-stabilization tool.