"Monetary, Fiscal and Structural Policies with Het.. (POLHIA)
"Monetary, Fiscal and Structural Policies with Heterogeneous Agents"
Start date: Nov 1, 2008,
End date: Oct 31, 2011
"It is almost a commonplace that macroeconomic policies, if well conducted, are a stability-enhancing device. By providing a non-inflationary environment, they “keep in order” the backstage of a movie in which the actors -- firms and households – determine long run growth by means of saving/investment decisions. In this view aggregate outcomes can be improved upon by means of microeconomic or structural policies such as labour and product market deregulation, investment in human capital etc. The scope of macroeconomic policies, however, is much wider. For instance, monetary policy affects business fluctuations and growth through financial factors which are certainly no less important than inflation, as the current sub-prime crisis has emphasized. POLHIA aims at exploring the role of macroeconomic policies in this wider sense and the nexus of macroeconomic and microeconomic/structural policies in an heterogeneous agents setting. Modern macroeconomic thinking must in fact go beyond the Representative Agent assumption because agents are indeed different -- in terms of real and financial conditions, labour market status, technical capabilities, expectations, market power etc. -- and this heterogeneity is crucial for macroeconomic outcomes. Monetary and fiscal policies affect in different ways different people just as structural policies do. Structural policies, in turn, can have macroeconomic consequences through externalities. Hence macro and micro policies are strictly intertwined: they can reinforce (or interfere with) each other. The research group will exploit a wide range of tools. At the level of model building the development of macroeconomic frameworks in the New Keynesian tradition will be paralleled and complemented by the extensive use of Agent based models, which are particularly appropriate for the exploration of heterogeneous agents environments. Empirical research will be carried out by means of econometric models and experiments to study, for instance, the formation of expectations. POLHIA aims at providing new insights and useful suggestions for the implementation of both macroeconomic policies and structural policies and for rethinking policy coordination or coherence, which emerges first between monetary and fiscal policies and second between micro and macro policies. The natural candidates to be beneficiaries of this type of analysis, therefore, are policy makers: first and foremost central bankers and Government officials in charge of fiscal and structural policies."
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