Template-type: ReDIF-Paper 1.0
Author-Name:Citera, Emanuele 
Author-Email: emanuelecitera@newschool.edu
Author-Name: Sau, Lino
Author-Email: lino.sau@unito.it
Author-Workplace-Name: University of Turin
Author-Workplace-Homepage: http://www.est.unito.it/
Title: Complexity, Conventions and Instability: the role of monetary policy
Abstract: Ever since the 2008 financial crisis, there has been both a widespread recognition that the mainstream approach on financial markets has failed to anticipate and 
to justify the crisis and on the need of ex ante and ex post adequate economic policies to cope with such phenomena. The aim of our paper is to provide a theoretical and 
methodological analysis of the role of conventions as emergent phenomena in financial markets, the latter being thought of as dynamically complex systems. Drawing upon the 
notion of ‘dynamic complexity’ and Keynes’ view of financial markets, we claim that social conventions can only provisionally stabilize the system, but they will eventually
lead to financial instability and crisis. Then, we adopt this framework to investigate the implications for monetary policy to stabilize the system by virtue of the role of 
central bank to intervene, and thus shape, a convention. In this respect, we consider the credibility of the monetary authority and how it can be exerted through ‘moral suasion’ 
to control the financial fragility of investors’ balance-sheet positions as well as to affect the convention around the longterm interest rate.
Length: pages 27
Creation-Date: 2019-11
File-URL: https://www.est.unito.it/do/home.pl/Download?doc=/allegati/wp2019dip/wp_24_2019.pdf
File-Format: Application/PDF
Handle: RePEc:uto:dipeco:201924