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E Pluribus Unum: Macroeconomic Modelling for Multi-agent Economies

  • Tiziana Assenza
  • Domenico Delli Gatti

From the point of view of the average macroeconomist, agent based modelling has an obvious drawback: It makes impossible to think in aggregate terms. The modeller, in fact, can reconstruct aggregate variables only "from the bottom up" by summing the individual quantities. As a consequence the interpretation of the transmission mechanism of shocks is somehow arbitrary. We propose a modelling strategy which reduces the dimensionality of an agent based framework by replacing the actual distributional features (in our model: the distribution of firms' financial conditions) with the first and second moments of the distribution itself. The main message is that the difficulty of thinking in macroeconomic terms when dealing with multi-agent economies can be circumvented by means of an appropriate aggregation procedure –which we label the Modified-Representative Agent –such that the distribution of agents' characteristics can be approximated by (at least) the (first and second) moments of the distribution. The moments of the distribution play the role of macroeconomic variables. We put this strategy at work in a model of the fi nancial accelerator in which fi rms' ’heterogeneous degree of fi nancial robustness affect investment in a bankruptcy risk context (à la Greenwald-Stiglitz).

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Paper provided by Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis in its series GREDEG Working Papers with number 2012-08.

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Length: 42 pages
Date of creation: Oct 2012
Date of revision:
Handle: RePEc:gre:wpaper:2012-08
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  1. Mark L. Gertler & R. Glenn Hubbard, 1988. "Financial Factors in Business Fluctuations," NBER Working Papers 2758, National Bureau of Economic Research, Inc.
  2. Schmitt-Grohé, Stephanie & Uribe, Martín, 2001. "Solving Dynamic General Equilibrium Models Using a Second-Order Approximation to the Policy Function," CEPR Discussion Papers 2963, C.E.P.R. Discussion Papers.
  3. Juan Carlos Cordoba & Marla Ripoll, 2004. "Collateral Constraints in a Monetary Economy," Journal of the European Economic Association, MIT Press, vol. 2(6), pages 1172-1205, December.
  4. Ben Bernanke & Mark Gertler & Simon Gilchrist, 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," NBER Working Papers 6455, National Bureau of Economic Research, Inc.
  5. Bruce C. Greenwald & Joseph E. Stiglitz & Andrew Weiss, 1984. "Informational Imperfections in the Capital Market and Macro-Economic Fluctuations," NBER Working Papers 1335, National Bureau of Economic Research, Inc.
  6. Kiyotaki, Nobuhiro & Moore, John, 1997. "Credit Cycles," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 211-48, April.
  7. Per Krusell & Anthony A. Smith & Jr., 1998. "Income and Wealth Heterogeneity in the Macroeconomy," Journal of Political Economy, University of Chicago Press, vol. 106(5), pages 867-896, October.
  8. Ben Bernanke & Mark Gertler, 1987. "Financial Fragility and Economic Performance," NBER Working Papers 2318, National Bureau of Economic Research, Inc.
  9. Greenwald, Bruce C & Stiglitz, Joseph E, 1993. "Financial Market Imperfections and Business Cycles," The Quarterly Journal of Economics, MIT Press, vol. 108(1), pages 77-114, February.
  10. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  11. M. Gallegati & A. Palestrini & D. Gatti & E. Scalas, 2006. "Aggregation of Heterogeneous Interacting Agents: The Variant Representative Agent Framework," Journal of Economic Interaction and Coordination, Springer, vol. 1(1), pages 5-19, May.
  12. Bernanke, Ben & Gertler, Mark, 1989. "Agency Costs, Net Worth, and Business Fluctuations," American Economic Review, American Economic Association, vol. 79(1), pages 14-31, March.
  13. White, Michelle J, 1989. "The Corporate Bankruptcy Decision," Journal of Economic Perspectives, American Economic Association, vol. 3(2), pages 129-51, Spring.
  14. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
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