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Interactions in the New Keynesian DSGE models: The Boltzmann-Gibbs machine and social networks approach

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  • Chen, Shu-heng
  • Chang, Chia-ling

Abstract

The BoltzmannGibbs distribution is currently widely used in economic modeling. One of the applications is integrated with the DSGE (Dynamic Stochastic General Equilibrium) model. However, a question that arises concerns whether the BoltzmannGibbs distribution can be directly applied, without considering the underlying social network structure more seriously, even though the social network structure is an important factor of social interaction. Therefore, this paper proposes two kinds of agent-based DSGE models. The first one belongs to mesoscopic modeling in formulating the social interaction with the BoltzmannGibbs machine, and the other one belongs to microscopic modeling in that it is augmented by the network-based ant machine. By comparing the population dynamics generated by those different agent-based DSGE models, we find that the BoltzmannGibbs machine offers a good approximation of herding behavior. However, it is difficult to envisage the population dynamics produced by the BoltzmannGibbs machine and by the network-based ant machine as having the same distribution, particularly in popular empirical network structures such as small world networks and scale-free networks. Thus, the social interaction behavior may not be replaced by the BoltzmannGibbs distribution.

Suggested Citation

  • Chen, Shu-heng & Chang, Chia-ling, 2012. "Interactions in the New Keynesian DSGE models: The Boltzmann-Gibbs machine and social networks approach," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 6, pages 1-32.
    • Handle: RePEc:zbw:ifweej:201226
    DOI: 10.5018/economics-ejournal.ja.2012-26
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    More about this item

    Keywords

    New Keynesian DSGE models; network-based ant model; networks; BoltzmannGibbs distribution;
    All these keywords.

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D85 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Network Formation
    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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