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Agent-based models for economic policy design: Two illustrative examples

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  • Westerhoff, Frank
  • Franke, Reiner

Abstract

With the help of two examples, we illustrate the usefulness of agent-based models as a tool for economic policy design. In our first example, we apply a financial market model in which the order flow of speculators, relying on technical and fundamental analysis, generates intricate price dynamics. In our second example, we apply a Keynesian-type goods market model in which the investment behavior of firms, relying on extrapolative and regressive predictors, generates complex business cycles. We add a central authority to these two setups and explore the impact of simple intervention strategies on the model dynamics. Based on these experiments, we conclude that agent-based models may help us to understand how markets function and to evaluate the effectiveness of various stabilization policies. --

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Bibliographic Info

Paper provided by Bamberg University, Bamberg Economic Research Group in its series BERG Working Paper Series with number 88.

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Date of creation: 2012
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Handle: RePEc:zbw:bamber:88

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Postal: D-96045 Bamberg
Phone: 0951/8632687
Fax: 0951/8632550
Web page: http://www.uni-bamberg.de/vwl/forschung/berg/
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Related research

Keywords: Agent-based models; Economic policy design; Financial markets; Goods markets; Simulation analysis;

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References

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Cited by:
  1. Riccetti, Luca & Russo, Alberto & Mauro, Gallegati, 2013. "Financial Regulation in an Agent Based Macroeconomic Model," MPRA Paper 51013, University Library of Munich, Germany.
  2. Poledna, Sebastian & Thurner, Stefan & Farmer, J. Doyne & Geanakoplos, John, 2014. "Leverage-induced systemic risk under Basle II and other credit risk policies," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 199-212.
  3. Ricetti, Luca & Russo, Alberto & Gallegati, Mauro, 2013. "Unemployment benefits and financial leverage in an agent based macroeconomic model," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 7(42), pages 1-44.

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