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E Pluribus Unum: Macroeconomic Modelling for Multi-agent Economies

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  • Assenza, T.

    ()
    (Universiteit van Amsterdam)

  • Delli Gatti, D.

    (Catholic University of Milan)

Abstract

From the point of view of the average macroeconomist, agent based modelling has an obvious drawback: It makes impossible to think in aggregate terms. The modeller, in fact, can reconstruct aggregate variables only "from the bottom up" by summing the individual quantities. As a consequence the interpretation of the trasmission mechanism of shocks is somehow arbitrary. We propose a modelling strategy which reduces the dimensionality of an agent based framework by replacing the actual distributional features (in our model: the distribution of financial conditions) with the first and second moments of the distribution itself. The main message is that the difficulty of thinking in macroeconomic terms when dealing with multi-agent economies can be circumvented by means of an appropriate aggregation procedure which we label the Modified-Representative Agent such that the distribution of agents' characteristics can be approximated by (at least) the (first and second) moments of the distribution. The moments of the distribution play the role of macroeconomic variables. We put this strategy at work in a model of the financial accelerator in which firms' heterogeneous degree of financial robustness affect investment in a bankruptcy risk context (à la Greenwald-Stiglitz).

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Bibliographic Info

Paper provided by Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance in its series CeNDEF Working Papers with number 12-08.

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Date of creation: 2012
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Handle: RePEc:ams:ndfwpp:12-08

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  1. Stephanie Schmitt-Grohe & Martin Uribe, 2001. "Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function," Departmental Working Papers, Rutgers University, Department of Economics 200106, Rutgers University, Department of Economics.
  2. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, American Economic Association, vol. 79(1), pages 14-31, March.
  3. Bruce C. Greenwald & Joseph E. Stiglitz & Andrew Weiss, 1984. "Informational Imperfections in the Capital Market and Macro-Economic Fluctuations," NBER Working Papers 1335, National Bureau of Economic Research, Inc.
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  5. Bernanke, Ben S. & Gertler, Mark & Gilchrist, Simon, 1999. "The financial accelerator in a quantitative business cycle framework," Handbook of Macroeconomics, Elsevier, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 21, pages 1341-1393 Elsevier.
  6. Cordoba, Juan & Ripoll, Marla, 2002. "Collateral Constraints in a Monetary Economy," Working Papers, Rice University, Department of Economics 2002-02, Rice University, Department of Economics.
  7. Mark L. Gertler & R. Glenn Hubbard, 1988. "Financial Factors in Business Fluctuations," NBER Working Papers 2758, National Bureau of Economic Research, Inc.
  8. Ben Bernanke & Mark Gertler, 1987. "Financial Fragility and Economic Performance," NBER Working Papers 2318, National Bureau of Economic Research, Inc.
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  10. John Moore & Nobuhiro Kiyotaki, . "Credit Cycles," Discussion Papers, Edinburgh School of Economics, University of Edinburgh 1995-5, Edinburgh School of Economics, University of Edinburgh.
  11. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  12. Bruce C. Greenwald & Joseph E. Stiglitz, 1988. "Financial Market Imperfections and Business Cycles," NBER Working Papers 2494, National Bureau of Economic Research, Inc.
  13. M. Gallegati & A. Palestrini & D. Gatti & E. Scalas, 2006. "Aggregation of Heterogeneous Interacting Agents: The Variant Representative Agent Framework," Journal of Economic Interaction and Coordination, Springer, Springer, vol. 1(1), pages 5-19, May.
  14. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers, Massachusetts Institute of Technology (MIT), Sloan School of Management 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
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