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Heterogeneous Interacting Agent Models for Understanding Monetary Economies

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Author Info

  • Joseph E Stiglitz

    (Finance & Economics Department, Graduate School of Business, Columbia University, 7W Uris Hall, New York, NY 10027, USA.)

  • Mauro Gallegati

    (Department of Economics, Universit� Politecnica delle Marche, Piazzale Martelli 8, Ancona 60121, Italy. E-mails: mauro.gallegati@gmail.com, mauro.gallegati@univpm.it)

Abstract

The representative agent (RA) approach of the mainstream economics allows a rich analysis of intertemporal maximization; but it rules out the possibility of the analysis of complex interactions. It is the latter that are at the root of this and other crises. We argue that the RA approach is simply not up to the task of enhancing our understanding of modern macroeconomies and that the standard cannot provide an adequate framework for understanding the economy even in more normal times.We advocate a bottom-up approach, where high-level (macroeconomic) systems may possess new and different properties than the low-level (microeconomic) systems on which they are based. The heterogeneous agent approach provides an alternative, one which has already proven its metal in helping us understand the interlinkages which helped give rise to the crisis.

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Bibliographic Info

Article provided by Palgrave Macmillan in its journal Eastern Economic Journal.

Volume (Year): 37 (2011)
Issue (Month): 1 ()
Pages: 6-12

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Handle: RePEc:pal:easeco:v:37:y:2011:i:1:p:6-12

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References

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  1. Mauro Gallegati & Bruce Greenwald & Matteo Richiardi & Joseph Stiglitz, 2007. "The Asymmetric Effect of Diffusion Processes: Risk Sharing and Contagion," LABORatorio R. Revelli Working Papers Series, LABORatorio R. Revelli, Centre for Employment Studies 71, LABORatorio R. Revelli, Centre for Employment Studies.
  2. Stefano Battiston & Domenico Delli Gatti & Mauro Gallegati & Bruce C. Greenwald & Joseph E. Stiglitz, 2009. "Liaisons Dangereuses: Increasing Connectivity, Risk Sharing, and Systemic Risk," NBER Working Papers 15611, National Bureau of Economic Research, Inc.
  3. Grossman, Sanford J & Stiglitz, Joseph E, 1976. "Information and Competitive Price Systems," American Economic Review, American Economic Association, American Economic Association, vol. 66(2), pages 246-53, May.
  4. Gatti, Domenico Delli & Guilmi, Corrado Di & Gaffeo, Edoardo & Giulioni, Gianfranco & Gallegati, Mauro & Palestrini, Antonio, 2005. "A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 56(4), pages 489-512, April.
  5. X. Freixas & B. Parigi & J-C. Rochet, 2000. "Systemic Risk, Interbank Relations and Liquidity Provision by theCentral Bank," DNB Staff Reports (discontinued), Netherlands Central Bank 47, Netherlands Central Bank.
  6. Sonnenschein, Hugo, 1972. "Market Excess Demand Functions," Econometrica, Econometric Society, Econometric Society, vol. 40(3), pages 549-63, May.
  7. Greenwald, Bruce C & Stiglitz, Joseph E, 1993. "Financial Market Imperfections and Business Cycles," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(1), pages 77-114, February.
  8. Joseph E. Stiglitz, 2002. "Information and the Change in the Paradigm in Economics," American Economic Review, American Economic Association, American Economic Association, vol. 92(3), pages 460-501, June.
  9. Mantel, Rolf R., 1974. "On the characterization of aggregate excess demand," Journal of Economic Theory, Elsevier, Elsevier, vol. 7(3), pages 348-353, March.
  10. Krishnamurthy, Arvind, 2000. "Comment on Systemic Risk, Interbank Relations, and Liquidity Provision by the Central Bank," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 32(3), pages 639-40, August.
  11. Michael Boss & Martin Summer & Stefan Thurner, 2004. "Contagion Flow Through Banking Networks," Papers cond-mat/0403167, arXiv.org.
  12. Nier, Erlend & Yang, Jing & Yorulmazer, Tanju & Alentorn, Amadeo, 2008. "Network models and financial stability," Bank of England working papers, Bank of England 346, Bank of England.
  13. Furfine, Craig H, 2003. " Interbank Exposures: Quantifying the Risk of Contagion," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 35(1), pages 111-28, February.
  14. Boissay, Frédéric, 2006. "Credit chains and the propagation of financial distress," Working Paper Series, European Central Bank 0573, European Central Bank.
  15. Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Russo, Alberto & Stiglitz, Joseph E., 2010. "The financial accelerator in an evolving credit network," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(9), pages 1627-1650, September.
  16. Domenico Delli Gatti & Mauro Gallegati & Bruce Greenwald & Alberto Russo & Joseph Stiglitz, 2009. "Business fluctuations and bankruptcy avalanches in an evolving network economy," Journal of Economic Interaction and Coordination, Springer, Springer, vol. 4(2), pages 195-212, November.
  17. Iori, Giulia & Jafarey, Saqib & Padilla, Francisco G., 2006. "Systemic risk on the interbank market," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 61(4), pages 525-542, December.
  18. Battiston, Stefano & Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Stiglitz, Joseph E., 2007. "Credit chains and bankruptcy propagation in production networks," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 31(6), pages 2061-2084, June.
  19. Greenwald, Bruce C & Stiglitz, Joseph E, 1986. "Externalities in Economies with Imperfect Information and Incomplete Markets," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 101(2), pages 229-64, May.
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Citations

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Cited by:
  1. Nadja König & Ingrid Größl, 2014. "Catching up with the Joneses and Borrowing Constraints: An Agent-based Analysis of Household Debt," Macroeconomics and Finance Series, Hamburg University, Department Wirtschaft und Politik 201404, Hamburg University, Department Wirtschaft und Politik.
  2. Yuri Biondi & Simone Righi, 2013. "What does the financial market pricing do? A simulation analysis with a view to systemic volatility, exuberance and vagary," Papers 1312.7460, arXiv.org.
  3. Ricetti, Luca & Russo, Alberto & Gallegati, Mauro, 2013. "Unemployment benefits and financial leverage in an agent based macroeconomic model," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, Kiel Institute for the World Economy, vol. 7(42), pages 1-44.
  4. Li, Xi Hao, 2013. "Standardization for Agent-based Modeling in Economics," MPRA Paper 47396, University Library of Munich, Germany.

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