Measuring Real Equilibrium Interest Rate: From the Linear Equation of the Taylor Rule to Agent - Based Model
Alexander Dedishchev *
Department of Economics, University of Vienna, Vienna, Austria and Department of Finance and Banking, Russian Presidential Academy of National Economy and Public Administration, Higher Educational Institution in Moscow, Russia
*Author to whom correspondence should be addressed.
Abstract
The aim of this paper is to transform standard Taylor rule linear equation model into agent-based computational (ABC) model. ABC model addresses monetary macroeconomics as a complex evolving system of heterogenous agents whose interactions continuously change the structure of the system.
Our ABC methodology extend the Taylor rule-based model with macroeconomic and global factorsthat account for the variability of the equilibrium interest rate and for the deviations of the actual federal funds rate from the interest rates implied by the Taylor rule.
As a result we compared two models and identified that ABC model allows to better understand forward looking equilibrium interest rate dynamics comparatively to Taylor’s mathematically determined 2% steady state equilibrium interest rate.
Keywords: Agent based model, monetary economics, Taylor rule, equilibrium interest rate, global demand for reserve currency, financial imbalances, wealth velocity of money