E Pluribus Unum: Macroeconomic Modelling for Multi-agent Economies
AbstractFrom 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 transmission 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 firms' 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 fi nancial accelerator in which fi rms' heterogeneous degree of fi nancial robustness affect investment in a bankruptcy risk context (à la Greenwald-Stiglitz).
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Bibliographic InfoPaper provided by Groupe de REcherche en Droit, Économie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis in its series GREDEG Working Papers with number 2012-08.
Length: 42 pages
Date of creation: Oct 2012
Date of revision:
Financial fragility; heterogeneity; stochastic aggregation; business fluctuations;
Other versions of this item:
- Assenza, Tiziana & Delli Gatti, Domenico, 2013. "E Pluribus Unum: Macroeconomic modelling for multi-agent economies," Journal of Economic Dynamics and Control, Elsevier, vol. 37(8), pages 1659-1682.
- E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
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