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Macroeconomic Policy effects on development transition – Views from Agent based model

Fadiran, Gideon and Fadiran, David and Ibn-Mohammed, Taofeeq (2017): Macroeconomic Policy effects on development transition – Views from Agent based model.

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Abstract

Assessing the impact of a policy before implementation has often been a difficult feat to achieve, both at the macroeconomic and microeconomic levels. This challenge becomes even more daunting in the context of a developing country and has encouraged enormous amount of research over an extended period of time using different models. Traditional models for assessing the impact of policy implementation are fragmented given the assumption that factors affecting such policies are homogeneous whilst neglecting the interactions between various markets. Agent-based modelling can overcome this limitation given its capability to provide a micro-founded macroeconomic analysis of policy, within a variety of economic conditions and policy objectives to facilitate the understanding of the observed response. Against this backdrop, the current work adopts an agent based framework to investigate three distinct policies that have been employed by some advanced countries towards achieving sustainable development goals. This is carried out to derive lessons and explore opportunities for enhancing policy implementation in developing countries. Agent representation involve decisions by involve manufacturers, households (final goods consumers), banks (loan issues & bankruptcy warning), central bank (Basel monitor & monetary policy activity), government (fiscal policy role) and singular energy market supplier, which enables consideration of: the impact of unemployment benefits on the labour market; the impact of capital investment subsidy on investment levels; and the impact of energy taxes (in the form of an increase in the energy cost structure) on a developing country’s macroeconomic system. Results shows that an increase in unemployment benefits led to improvements in the labour market and reduction in wage margin, with a limitation threshold of 50%. Additionally, it was observed that the economy becomes more sensitive to energy tax due to higher unemployment benefits, although the diminishing nature of the relationship was quite noticeable.

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