Modeling Maximum Entropy and Mean-Field Interaction in Macroeconomics
AbstractThe representation of the economic system, from a complexity perspective, focuses on interactions among heterogeneous agents in conditions of uncertainty. Heterogeneity entails asymmetric reactions to shocks and, through interaction mechanisms and feedback loops at micro, macro and meso level, these diverse reactions influence behaviours of other agents. Such a system cannot be modelled with mainstream economics' tools. In this work we propose a stochastic dynamic model with heterogeneous firms. Their responses to stochastic shocks, in order to maximize profit, modifies their financial ratios, determining in this way the evolution of the system. The model is analytically solved by means of maximum entropy maximization and master equation's solution techniques (Aoki and Yoshikawa, 2006). --
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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Economics Discussion Papers with number 2008-36.
Date of creation: 2008
Date of revision:
Business cycles; heterogeneity; financial fragility; stochastic aggregation;
Find related papers by JEL classification:
- E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
- E1 - Macroeconomics and Monetary Economics - - General Aggregative Models
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- Alan P. Kirman, 1992. "Whom or What Does the Representative Individual Represent?," Journal of Economic Perspectives, American Economic Association, vol. 6(2), pages 117-136, Spring.
- Gatti, Domenico Delli & Guilmi, Corrado Di & Gaffeo, Edoardo & Giulioni, Gianfranco & Gallegati, Mauro & Palestrini, Antonio, 2005. "A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility," Journal of Economic Behavior & Organization, Elsevier, vol. 56(4), pages 489-512, April.
- Simone Landini & Corrado Di Guilmi & Mauro Gallegati, 2008. "A Maxent Model For Macroscenario Analysis," Advances in Complex Systems (ACS), World Scientific Publishing Co. Pte. Ltd., vol. 11(05), pages 719-744.
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