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Smart systems and simple agents: industry pricing by parallel rules

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Author Info

  • Raymond Board
  • P.A. Tinsley

Abstract

A standard macroeconomic specification is that the aggregate economy is directed by a single, smart representative agent using optimal decision rules. This paper explores an alternative conjecture--that the dynamic behavior of markets is often better interpreted as the interactions of many heterogeneous, rule-of-thumb agents who are loosely coupled in smart systems--much like the contrast of a single serial processor with global information versus parallel processors with limited communications. The illustration used in this paper is the contrast between a conventional macro model of sluggish adjustments in an aggregate producer price index and a model of delayed industry price adjustments in a distributed production system under costly inter-firm communications.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 1996-50.

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Date of creation: 1996
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Handle: RePEc:fip:fedgfe:1996-50

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Keywords: Prices;

References

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  2. Schmalensee, Richard, 1989. "Inter-industry studies of structure and performance," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 16, pages 951-1009 Elsevier.
  3. Thomas J. Sargent, 1982. "The Ends of Four Big Inflations," NBER Chapters, in: Inflation: Causes and Effects, pages 41-98 National Bureau of Economic Research, Inc.
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  13. Robert J. Gordon, 1981. "Output Fluctuations and Gradual Price Adjustment," NBER Working Papers 0621, National Bureau of Economic Research, Inc.
  14. P.A. Tinsley, 1993. "Fitting both data and theories: polynomial adjustment costs and error- correction decision rules," Finance and Economics Discussion Series 93-21, Board of Governors of the Federal Reserve System (U.S.).
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  16. Tsiddon, Daniel, 1993. "The (Mis)Behaviour of the Aggregate Price Level," Review of Economic Studies, Wiley Blackwell, vol. 60(4), pages 889-902, October.
  17. Gode, Dhananjay K & Sunder, Shyam, 1993. "Allocative Efficiency of Markets with Zero-Intelligence Traders: Market as a Partial Substitute for Individual Rationality," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 119-37, February.
  18. Domowitz, Ian & Hubbard, R Glenn & Petersen, Bruce C, 1987. "Oligopoly Supergames: Some Empirical Evidence on Prices and Margins," Journal of Industrial Economics, Wiley Blackwell, vol. 35(4), pages 379-98, June.
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  21. Perry, Martin K., 1989. "Vertical integration: Determinants and effects," Handbook of Industrial Organization, in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 1, chapter 4, pages 183-255 Elsevier.
  22. Gordon, Robert J, 1990. "What Is New-Keynesian Economics?," Journal of Economic Literature, American Economic Association, vol. 28(3), pages 1115-71, September.
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  24. Waterson, Michael, 1982. "Vertical Integration, Variable Proportions and Oligopoly," Economic Journal, Royal Economic Society, vol. 92(365), pages 129-44, March.
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Cited by:
  1. John Rust, 1996. "Dealing with the Complexity of Economic Calculations," Computational Economics 9610002, EconWPA, revised 21 Oct 1997.
  2. Jon Faust & Ralph Tryon, 1994. "A distributed block approach to solving near-block-diagonal systems with an application to a large macroeconometric model," International Finance Discussion Papers 488, Board of Governors of the Federal Reserve System (U.S.).

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