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Price dynamics, financial fragility and aggregate volatility

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Abstract

Within a standard framework à la Arrow-Debreu, we investigate the dynamics emerging from the interactions of heterogeneous households and firms that are adaptive price setters and financially constrained. We show that depending on the stringency of the financial constraints the model can settle in two very different regimes: one characterized by equilibrium, the other by disequilibrium and financial fragility. We then investigate how the structure of the production network affects the emergence of aggregate volatility from micro-level price and financial shocks, hence providing a dynamical counterpart to recent results of Acemoglu and al (2012)

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  • Antoine Mandel & Simone Landini & Mauro Gallegati & Herbert Gintis, 2013. "Price dynamics, financial fragility and aggregate volatility," Documents de travail du Centre d'Economie de la Sorbonne 13076, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  • Handle: RePEc:mse:cesdoc:13076
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    Citations

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    Cited by:

    1. Pascal Seppecher & Isabelle Salle & Marc Lavoie, 2017. "What drives markups? Evolutionary pricing in an agent-based stock-flow consistent macroeconomic model," CEPN Working Papers hal-01486597, HAL.
    2. Thesmar , David & Landier , Augustin, 2014. "Instabilities in Large Economies: Aggregate Volatility Without Idiosyncratic Shocks," Les Cahiers de Recherche 1052, HEC Paris.
    3. repec:eee:dyncon:v:83:y:2017:i:c:p:232-269 is not listed on IDEAS
    4. Mauro Napoletano, 2017. "A Short Walk on the Wild Side: Agent-Based Models and their Implications for Macroeconomic Analysis," GREDEG Working Papers 2017-40, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
    5. Gerard Ballot & Antoine Mandel & Annick Vignes, 2015. "Agent-based modeling and economic theory: where do we stand?," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 10(2), pages 199-220, October.
    6. Mandel, Antoine & Gintis, Herbert, 2016. "Decentralized Pricing and the equivalence between Nash and Walrasian equilibrium," Journal of Mathematical Economics, Elsevier, vol. 63(C), pages 84-92.

    More about this item

    Keywords

    Agent-based modeling; financial fragility; price dynamics; general equilibrium; production networks;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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