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Social networks and macroeconomic stability

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  • Chen, Shu-Heng
  • Chang, Chia-Ling
  • Wen, Ming-Chang

Abstract

We construct an agent-based New Keynesian DSGE model with different social network structures to investigate the significance of network topologies to macroeconomic stability. According to our simulation results, we find that the more liquid the information flow, the higher the stability of the economy. Furthermore, the speed of information dissemination and the degree of clustering among agents may give rise to an adverse effect on economic stability. Finally, we find that the scale-free network will lead to the most dramatic economic fluctuations. The result is ascribed to the scale-free network's high centrality. It indicates that the opinion leaders may bring about a conglomerate effect that will cause fluctuations in the economy. --

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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2013-4.

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Date of creation: 2013
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Handle: RePEc:zbw:ifwedp:20134

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Keywords: New Keynesian DSGE models; macroeconomic stability; social networks; Information dissemination; herding effect; agent-based model;

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