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Macroeconomic Policy in DSGE and Agent-Based Models

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  • Giorgio Fagiolo
  • Andrea Roventini

Abstract

The Great Recession seems to be a natural experiment for macroeconomics showing the inadequacy of the predominant theoretical framework — the New Neoclassical Synthesis — grounded on the DSGE model. In this paper, we present a critical discussion of the theoretical, empirical and political-economy pitfalls of the DSGE-based approach to policy analysis. We suggest that a more fruitful research avenue to pursue is to explore alternative theoretical paradigms, which can escape the strong theoretical requirements of neoclassical models (e.g., equilibrium, rationality, representative agent, etc.). We briefly introduce one of the most successful alternative research projects – known in the literature as agent-based computational economics (ACE) – and we present the way it has been applied to policy analysis issues. We then provide a survey of agent-based models addressing macroeconomic policy issues. Finally, we conclude by discussing the methodological status of ACE, as well as the (many) problems it raises.

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Paper provided by Institute for New Economic Thinking (INET) in its series INET Research Notes with number 6.

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Date of creation: 13 Jul 2012
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Handle: RePEc:thk:rnotes:6

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  1. Here we go again: ABM versus DSGE
    by Economic Logician in Economic Logic on 2012-11-08 15:23:00
  2. [??]ABM??????
    by himaginary in himaginaryの日記 on 2012-11-13 08:00:00
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  3. Giovanni Dosi & Giorgio Fagiolo & Mauro Napoletano & Andrea Roventini, 2012. "Income Distribution, Credit and Fiscal Policies in an Agent-Based Keynesian Model," LEM Papers Series 2012/03, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
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  8. Riccetti, Luca & Russo, Alberto & Gallegati, Mauro, 2013. "Unemployment benefits and financial factors in an agent-based macroeconomic model," Economics Discussion Papers 2013-9, Kiel Institute for the World Economy.

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