Agent-based Macroeconomics and Dynamic Stochastic General Equilibrium Models: Where do we go from here?

Agent-based computational economics (ACE) has been used for tackling major research questions in macroeconomics for at least two decades. This growing field positions itself as an alternative to dynamic stochastic general equilibrium (DSGE) models. In this paper we first review the arguments raised against DSGE in the ACE literature. We then review existing ACE models, and their empirical performance. We then turn to a literature on behavioural New Keynesian models that attempts to synthesise these two approaches to macroeconomic modelling by incorporating some of the insights of ACE into DSGE modelling. We highlight the individually rational New Keynesian model following Deak et al. (2015) and discuss how this line of research can progress.