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Price Dynamics, financial fragility and aggregate volatility

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  • Antoine Mandel

    ()
    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris)

  • Simone Landini

    ()
    (Socioeconomic Research Institute of Piedmont - Socioeconomic Research Institute of Piedmont)

  • Mauro Gallegati

    ()
    (Università Politecnica delle Marche - UNIVPM)

  • Herbert Gintis

    (Santa Fe Institute - Santa Fe Institute, Central European University - CEU - Central European University)

Abstract

Within a standard framework à la Arrow-Debreu, we investigate the dynamics emerging from the interactions of heterogeneous households and firms that are adaptive price setters and financially constrained. We show that depending on the stringency of the financial constraints the model can settle in two very different regimes: one characterized by equilibrium, the other by disequilibrium and financial fragility. We then investigate how the structure of the production network affects the emergence of aggregate volatility from micro-level price and financial shocks, hence providing a dynamical counterpart to recent results of Acemoglu and al (2012).

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Bibliographic Info

Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00917892.

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Date of creation: Nov 2013
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Handle: RePEc:hal:cesptp:halshs-00917892

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Keywords: Agent-based modeling; financial fragility; price dynamics; general equilibrium; production networks;

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References

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  1. Herbert Gintis & Antoine Mandel, 2012. "The Stability of Walrasian General Equilibrium," Documents de travail du Centre d'Economie de la Sorbonne, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne 12065, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  2. Xavier Gabaix, 2009. "The Granular Origins of Aggregate Fluctuations," NBER Working Papers 15286, National Bureau of Economic Research, Inc.
  3. Battiston, Stefano & Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Stiglitz, Joseph E., 2007. "Credit chains and bankruptcy propagation in production networks," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 31(6), pages 2061-2084, June.
  4. Antoine Mandel & Carlo Jaeger & Steffen Fürst & Wiebke Lass & Daniel Lincke & Frank Meissner & Federico Pablo-Marti & Sarah Wolf, 2010. "Agent-based dynamics in disaggregated growth models," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers), HAL halshs-00542442, HAL.
  5. Daron Acemoglu & Vasco M. Carvalho & Asuman E. Ozdaglar & Alireza Tahbaz-Salehi, 2012. "The Network Origins of Aggregate Fluctuations," Levine's Working Paper Archive 786969000000000359, David K. Levine.
  6. Larry Eisenberg & Thomas H. Noe, 2001. "Systemic Risk in Financial Systems," Management Science, INFORMS, INFORMS, vol. 47(2), pages 236-249, February.
  7. Dupor, Bill, 1999. "Aggregation and irrelevance in multi-sector models," Journal of Monetary Economics, Elsevier, Elsevier, vol. 43(2), pages 391-409, April.
  8. Jean-Pascal Bénassy, 2005. "The Macroeconomics of Imperfect Competition and Nonclearing Markets: A Dynamic General Equilibrium Approach," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262524368, December.
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  10. Blake LeBaron & Leigh Tesfatsion, 2008. "Modeling Macroeconomies as Open-Ended Dynamic Systems of Interacting Agents," American Economic Review, American Economic Association, American Economic Association, vol. 98(2), pages 246-50, May.
  11. Herbert Gintis, 2007. "The Dynamics of General Equilibrium," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 117(523), pages 1280-1309, October.
  12. Giovanni Dosi & Giorgio Fagiolo & Andrea Roventini, 2008. "Schumpeter Meeting Keynes: A Policy-Friendly Model of Endogenous Growth and Business Cycles," Working Papers, University of Verona, Department of Economics 50/2008, University of Verona, Department of Economics.
  13. Michael Horvath, 1998. "Cyclicality and Sectoral Linkages: Aggregate Fluctuations from Independent Sectoral Shocks," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(4), pages 781-808, October.
  14. Long, John B, Jr & Plosser, Charles I, 1983. "Real Business Cycles," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 91(1), pages 39-69, February.
  15. John Geanakoplos & Robert Axtell & J. Doyne Farmer & Peter Howitt & Benjamin Conlee & Jonathan Goldstein & Matthew Hendrey & Nathan M. Palmer & Chun-Yi Yang, 2012. "Getting at Systemic Risk via an Agent-Based Model of the Housing Market," American Economic Review, American Economic Association, American Economic Association, vol. 102(3), pages 53-58, May.
  16. Delli Gatti, Domenico & Gallegati, Mauro & Greenwald, Bruce & Russo, Alberto & Stiglitz, Joseph E., 2010. "The financial accelerator in an evolving credit network," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 34(9), pages 1627-1650, September.
  17. Gatti, Domenico Delli & Guilmi, Corrado Di & Gaffeo, Edoardo & Giulioni, Gianfranco & Gallegati, Mauro & Palestrini, Antonio, 2005. "A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 56(4), pages 489-512, April.
  18. Bak, Per & Chen, Kan & Scheinkman, Jose & Woodford, Michael, 1993. "Aggregate fluctuations from independent sectoral shocks: self-organized criticality in a model of production and inventory dynamics," Ricerche Economiche, Elsevier, Elsevier, vol. 47(1), pages 3-30, March.
  19. Greenwald, Bruce C & Stiglitz, Joseph E, 1993. "Financial Market Imperfections and Business Cycles," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 108(1), pages 77-114, February.
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Cited by:
  1. Julius Bonart & Jean-Philippe Bouchaud & Augustin Landier & David Thesmar, 2014. "Instabilities in large economies: aggregate volatility without idiosyncratic shocks," Papers 1406.5022, arXiv.org.

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