A Lecture of the Taylor Rule from the Sandpile Model

Abstract

Sandpile phenomena in dynamic systems in the vicinity of criticality always appeal to a sudden break of stability with avalanches of different sizes due to minor perturbations. We can view the intervention of the Central Banks on the rate of interest as a perturbation of the economic system. It is an induced perturbation to a system that fare in vicinity of criticality according to the conditions of stability embedded in the equations of the neoclassical model. An alternative reading of the Taylor Rule is proposed in combination with the Sandpile paradigm to give an account of the economic crisis as an event like an avalanche, that can be triggered by a perturbation, as is the intervention of the Central Bank on the interest rate.