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Agent-based financial markets and New Keynesian macroeconomics: A synthesis

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  • Lengnick, Matthias
  • Wohltmann, Hans-Werner

Abstract

We combine a simple agent-based model of financial markets with a standard New Keynesian macroeconomic model via two straightforward channels. The result is a macroeconomic model that allows for the endogenous development of stock price bubbles. Even with such a simplistic comprehensive model, we can show that the behavioral foundations of the stock market exert important influence on the macroeconomy, e.g. they change the impulse-response functions of macroeconomic variables significantly. We also analyze financial market transaction taxes as well as asset price bubble deflating monetary policy, and find that both can be used to reduce volatility and distortion of the macroeconomic aggregates. --

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Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2010,10.

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Date of creation: 2010
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Handle: RePEc:zbw:cauewp:201010

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Keywords: agent-based financial markets; New Keynesian macroeconomics; stock market; transaction tax; Taylor rule;

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  1. ABM+NKDSGE=?
    by Economic Logician in Economic Logic on 2010-12-27 15:42:00
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Cited by:
  1. Jang, Tae-Seok & Sacht, Stephen, 2012. "Identification of Animal Spirits in a Bounded Rationality Model: An Application to the Euro Area," MPRA Paper 37399, University Library of Munich, Germany.
  2. Alessandro Spelta & Guido Ascari & Nicolò Pecora, 2012. "Boom and Burst in Housing Market with Heterogeneous Agents," Quaderni di Dipartimento 177, University of Pavia, Department of Economics and Quantitative Methods.
  3. Ahmad Naimzada & Marina Pireddu, 2013. "Dynamic behavior of real and stock markets with a varying degree of interaction," Working Papers 245, University of Milano-Bicocca, Department of Economics, revised Jun 2013.
  4. De Grauwe, Paul & Rovira Kaltwasser, Pablo, 2012. "Animal spirits in the foreign exchange market," Journal of Economic Dynamics and Control, Elsevier, vol. 36(8), pages 1176-1192.
  5. Lengnick, Matthias, 2013. "Agent-based macroeconomics: A baseline model," Journal of Economic Behavior & Organization, Elsevier, vol. 86(C), pages 102-120.
  6. Scheffknecht, Lukas & Geiger, Felix, 2011. "A behavioral macroeconomic model with endogenous boom-bust cycles and leverage dynamcis," FZID Discussion Papers 37-2011, University of Hohenheim, Center for Research on Innovation and Services (FZID).
  7. Fischer, Thomas & Riedler, Jesper, 2012. "Prices, debt and market structure in an agent-based model of the financial market," ZEW Discussion Papers 12-045, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  8. Chen, Shu-heng & Chang, Chia-ling, 2012. "Interactions in the New Keynesian DSGE models: The Boltzmann-Gibbs machine and social networks approach," Economics - The Open-Access, Open-Assessment E-Journal, Kiel Institute for the World Economy, vol. 6(26), pages 1-32.
  9. Nicolò Pecora & Alessandro Spelta, 2013. "Macroeconomic Stability and Heterogeneous Expectations," DEM Working Papers Series 037, University of Pavia, Department of Economics and Management.
  10. Chen, Shu-Heng & Chang, Chia-Ling & Tseng, Yi-Heng, 2014. "Social networks, social interaction and macroeconomic dynamics: How much could Ernst Ising help DSGE?," Research in International Business and Finance, Elsevier, vol. 30(C), pages 312-335.
  11. Totzek, Alexander, 2011. "Banks, oligopolistic competition, and the business cycle: A new financial accelerator approach," Economics Working Papers 2011,02, Christian-Albrechts-University of Kiel, Department of Economics.
  12. Westerhoff, Frank, 2011. "Interactions between the real economy and the stock market," BERG Working Paper Series 84, Bamberg University, Bamberg Economic Research Group.
  13. Chang, Chia-ling & Chen, Shu-heng, 2011. "Interactions in DSGE models: The Boltzmann-Gibbs machine and social networks approach," Economics Discussion Papers 2011-25, Kiel Institute for the World Economy.
  14. Westerhoff, Frank & Franke, Reiner, 2012. "Agent-based models for economic policy design: Two illustrative examples," BERG Working Paper Series 88, Bamberg University, Bamberg Economic Research Group.
  15. Ahmad Naimzada & Marina Pireddu, 2014. "Real and financial interacting oscillators: a behavioral macro-model with animal spirits," Working Papers 268, University of Milano-Bicocca, Department of Economics, revised Feb 2014.

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