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No man is an island : the Impact of Heterogeneity and local interactions on Macroeconomic Dynamics

Listed author(s):
  • Mattia Guerini

    (Scuola Superiore Sant'Anna)

  • Mauro Napoletano

    (OFCE and SKEMA Business School)

  • Andrea Roventini

    (Scuola Superiore Sant'Anna - OFCE Sciences Po)

We develop an agent-based model in which heterogeneous firms and households interact in labor and good markets according to centralized or decentralized search and matching protocols. As the model has a deterministic backbone and a full-employment equilibrium, it can be directly compared to Dynamic Stochastic General Equilibrium (DSGE) models. We study the effects of negative productivity shocks by way of impulse-response func- tions (IRF). Simulation results show that when search and matching are centralized, the economy is always able to return to the full employment equilibrium and IRFs are similar to those generated by DSGE models. However, when search and matching are local, co- ordination failures emerge and the economy persistently deviates from full employment. Moreover, agents display persistent heterogeneity. Our results suggest that macroeco- nomic models should explicitly account for agents’ heterogeneity and direct interactions.

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File URL: http://www.ofce.sciences-po.fr/pdf/dtravail/WP2016-18.pdf
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Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2016-18.

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Date of creation: Jun 2016
Handle: RePEc:fce:doctra:1618
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