IDEAS home Printed from https://ideas.repec.org/a/fau/aucocz/au2012_038.html
   My bibliography  Save this article

Endogenous Heterogeneity, the Propagation of Information and Macroeconomic Complexity

Author

Listed:
  • Orlando Gomes

Abstract

The economy is an adaptive and evolving complex system. The recognition of this fact has produced, over the last few years, a gradual but firm shift on the direction taken by mainstream economic thought. The representative agent paradigm is giving place to settings of interacting heterogeneous agents, capable of generating dynamic outcomes that are unique for each assumed pattern of interaction. The complexity era, as it is called, requires original insights and innovative approaches, in order to reinterpret the economic reality. This paper intends to contribute to the complexity literature in economics by exploring a popular macroeconomic model (the sticky-information model) from a new angle. Information acquisition by price-setting firms will be endogenously determined in two steps: (i) the competition between almost identical media leads to an irregular pattern of information creation; (ii) once created, information spreads throughout the interested audience following a diffusion process. The con sequence is an erratic aggregate pattern of information acquisition that has consequences at a macro level, namely concerning the shape of the Phillips curve, which will change every period. Heterogeneity, self-organization, evolution and out-of-equilibrium dynamics are features that allow to classify the suggested framework as a setting of macroeconomic complexity.

Suggested Citation

  • Orlando Gomes, 2012. "Endogenous Heterogeneity, the Propagation of Information and Macroeconomic Complexity," Czech Economic Review, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, vol. 6(1), pages 38-58, March.
  • Handle: RePEc:fau:aucocz:au2012_038
    as

    Download full text from publisher

    File URL: http://auco.cuni.cz/mag/article/download/id/123/type/attachment
    Download Restriction: no

    References listed on IDEAS

    as
    1. Gomes, Orlando, 2008. "Too much of a good thing: Endogenous business cycles generated by bounded technological progress," Economic Modelling, Elsevier, vol. 25(5), pages 933-945, September.
    2. Fontana, Magda, 2010. "Can neoclassical economics handle complexity? The fallacy of the oil spot dynamic," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 584-596, December.
    3. Sheri M. Markose, 2005. "Computability and Evolutionary Complexity: Markets as Complex Adaptive Systems (CAS)," Economic Journal, Royal Economic Society, vol. 115(504), pages 159-192, June.
    4. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information versus Sticky Prices: A Proposal to Replace the New Keynesian Phillips Curve," The Quarterly Journal of Economics, Oxford University Press, vol. 117(4), pages 1295-1328.
    5. N. Gregory Mankiw & Ricardo Reis, 2007. "Sticky Information in General Equilibrium," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 603-613, 04-05.
    6. Ron Martin & Peter Sunley, 2010. "Complexity Thinking and Evolutionary Economic Geography," Chapters,in: The Handbook of Evolutionary Economic Geography, chapter 4 Edward Elgar Publishing.
    7. K. Vela Velupillai, 2004. "A primer on the tools and concept of computable economics," Department of Economics Working Papers 0405, Department of Economics, University of Trento, Italia.
    8. Richard Holt & J. Barkley Rosser & David Colander, 2011. "The Complexity Era in Economics," Review of Political Economy, Taylor & Francis Journals, vol. 23(3), pages 357-369.
    9. Klaus Schmidt-Hebbel & Carl E. Walsh, 2009. "Monetary Policy under Uncertainty and Learning: An Overview," Central Banking, Analysis, and Economic Policies Book Series,in: Klaus Schmidt-Hebbel & Carl E. Walsh & Norman Loayza (Series Editor) & Klaus Schmidt-Hebbel (Series (ed.), Monetary Policy under Uncertainty and Learning, edition 1, volume 13, chapter 1, pages 001-025 Central Bank of Chile.
    10. Puu, T., 2010. "On the economics of increasing complexity: With some special focus on culture," Journal of Economic Behavior & Organization, Elsevier, vol. 75(1), pages 59-68, July.
    11. Fontana Magda, 2008. "The complexity approach to economics : a Paradigm shift," CESMEP Working Papers 200801, University of Turin.
    12. N. Gregory Mankiw & Ricardo Reis, 2006. "Pervasive Stickiness," American Economic Review, American Economic Association, vol. 96(2), pages 164-169, May.
    13. David Colander, 2009. "Complexity and the History of Economic Thought," Chapters,in: Handbook of Research on Complexity, chapter 16 Edward Elgar Publishing.
    14. N. Gregory Mankiw & Ricardo Reis, 2006. "Pervasive Stickiness (Expanded Version)," NBER Working Papers 12024, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Complexity; information production and diffusion; heterogeneity; sticky-information; nonlinear dynamics;

    JEL classification:

    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:fau:aucocz:au2012_038. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lenka Stastna). General contact details of provider: http://edirc.repec.org/data/icunicz.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.