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Rethinking Inflation in an Agent-Based Macroeconomic Model

Author

Listed:
  • Leonardo Ciambezi

    (Université Côte d'Azur, CNRS, GREDEG, France)

  • Mattia Guerini

    (Universita di Brescia
    Fondazione ENI Enrico Mattei
    Université Côte d'Azur, CNRS, GREDEG, France
    Sant'Anna School of Advanced Studies)

  • Mauro Napoletano

    (Université Côte d'Azur, CNRS, GREDEG, France
    Sciences Po, OFCE, France
    Sant'Anna School of Advanced Studies)

  • Andrea Roventini

    (Institute of Economics and EMbeDS, Scuola Superiore Sant'Anna
    Sciences Po, OFCE)

Abstract

We develop an Agent-Based model to study the role of demand vs. supply in determining inflation dynamics. Heterogeneous firms and households, downward money wage rigidity, and imperfect selection in the goods markets characterize the model. We show that the importance of demand vs. supply factors in determining inflation is related to the degree of imperfect selection in the market for goods. In particular, when the matching between firms and customers depends on firm size as well as on firm price, aggregate demand loses relevance in determining inflation, which is then driven by an increase in mark up rates caused by changes in the structure of the market of goods. Finally, we investigate the impact of different kinds of aggregate demand and supply shocks on output-inflation dynamics in the model. We show that aggregate shocks induce “profit-push” price increases, to the extent that they are able to impact market structure.

Suggested Citation

  • Leonardo Ciambezi & Mattia Guerini & Mauro Napoletano & Andrea Roventini, 2023. "Rethinking Inflation in an Agent-Based Macroeconomic Model," GREDEG Working Papers 2023-14, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France.
    • Handle: RePEc:gre:wpaper:2023-14
    as

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    References listed on IDEAS

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    More about this item

    Keywords

    Inflation; agent-based models; market selection; market structure; excess demand; mark up rates;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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