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Agent-Based Macro

In: Handbook of Computational Economics

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  • Leijonhufvud, Axel

Abstract

Acceptance of computer modeling and experimentation has spread slowly at best in economics in large part because agent-based models often seem foreign to the neoclassical core of economics, as that core is understood today. But in its beginnings neoclassical economics was not built from choice theory, did not represent decisions as solutions to constrained optimization problems, made no strong assumptions about the rationality of agents, and did not view the world as always in equilibrium. Agent-based economics can tap into this older neoclassical economics of adaptive behavior and ongoing market processes while circumventing the technical obstacles which forced the forerunners to adopt the "static" method.Agent-based process analysis will finally make it possible to tackle the central problem of macroeconomics, namely, the self-regulating capabilities of a capitalistic economy. Keynes challenged the presumption that flexibility of all prices guaranteed the stability of general equilibrium, arguing that effective demand failures meant that Say's Law did not hold. When supply did not create its own demand, stabilization policy in the form of aggregate demand management was required to restore full employment. In modern general equilibrium based macroeconomics, in contrast, Say's Law always holds, only "frictions" stand in the way of full employment, and stabilization policy lacks any tenable rationalization.Agent-based computational methods provide the only way in which the self-regulatory capabilities of complex dynamic models can be explored so as to advance our understanding of the adaptive dynamics of actual economies.

Suggested Citation

  • Leijonhufvud, Axel, 2006. "Agent-Based Macro," Handbook of Computational Economics,in: Leigh Tesfatsion & Kenneth L. Judd (ed.), Handbook of Computational Economics, edition 1, volume 2, chapter 36, pages 1625-1637 Elsevier.
  • Handle: RePEc:eee:hecchp:2-36
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    Citations

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    Cited by:

    1. Patrascu Diana – Ramona, 2013. "The Representative Economic Agent – An Epistemological Approach," Annals - Economy Series, Constantin Brancusi University, Faculty of Economics, vol. 2, pages 42-46, April.
    2. Isabelle SALLE & Marc-Alexandre SENEGAS & Murat YILDIZOGLU, 2013. "How Transparent About Its Inflation Target Should a Central Bank be? An Agent-Based Model Assessment," Cahiers du GREThA 2013-24, Groupe de Recherche en Economie Théorique et Appliquée.
    3. Arnold, Bruce & Borio, Claudio & Ellis, Luci & Moshirian, Fariborz, 2012. "Systemic risk, macroprudential policy frameworks, monitoring financial systems and the evolution of capital adequacy," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3125-3132.
    4. Gualdi, Stanislao & Tarzia, Marco & Zamponi, Francesco & Bouchaud, Jean-Philippe, 2015. "Tipping points in macroeconomic agent-based models," Journal of Economic Dynamics and Control, Elsevier, vol. 50(C), pages 29-61.
    5. Salle, Isabelle & Yıldızoğlu, Murat & Sénégas, Marc-Alexandre, 2013. "Inflation targeting in a learning economy: An ABM perspective," Economic Modelling, Elsevier, vol. 34(C), pages 114-128.
    6. Howitt, Peter & Özak, Ömer, 2014. "Adaptive consumption behavior," Journal of Economic Dynamics and Control, Elsevier, vol. 39(C), pages 37-61.
    7. Domenico Gatti & Edoardo Gaffeo & Mauro Gallegati, 2010. "Complex agent-based macroeconomics: a manifesto for a new paradigm," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 5(2), pages 111-135, December.
    8. Oeffner, Marc, 2008. "Agent–Based Keynesian Macroeconomics - An Evolutionary Model Embedded in an Agent–Based Computer Simulation," MPRA Paper 18199, University Library of Munich, Germany, revised Oct 2009.

    More about this item

    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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