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Real and financial crises in the Keynes-Kalecki structuralist model: An agent-based approach

Author

Listed:
  • Bill Gibson

    () (University of Vermont)

  • Mark Setterfield

    () (Department of Economics, New School for Social Research)

Abstract

Agent-based models are inherently microstructures - with their attention to agent behavior in a field context - and only aggregate up to systems with recognizable macroeconomic characteristics. One might ask why the traditional Keynes-Kalecki or structuralist (KKS) model would bear any relationship to the multi-agent modeling approach. This paper shows how KKS models might benefit from agent-based microfoundations, without sacri cing traditional macroeconomic themes, such as aggregate demand, animal sprits and endogenous money. Above all, the integration of the two approaches gives rise to the possibility that a KKS system - stable over many consecutive time periods - might lurch into an uncontrollable downturn, from which a recovery would require outside intervention. As a by-product of the integration of these two popular approaches, there emerges a cogent analysis of the network structure necessary to bind real and financial agents into a integrated whole. It is seen, contrary to much of the existing literature, that a highly connected financial system does not necessarily lead to more crashes of the integrated system.

Suggested Citation

  • Bill Gibson & Mark Setterfield, 2015. "Real and financial crises in the Keynes-Kalecki structuralist model: An agent-based approach," Working Papers 1517, New School for Social Research, Department of Economics.
  • Handle: RePEc:new:wpaper:1517
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    File URL: http://www.economicpolicyresearch.org/econ/2015/NSSR_WP_172015.pdf
    File Function: First version, 2015
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    Cited by:

    1. Setterfield, Mark & Gouri Suresh, Shyam, 2016. "Multi-agent systems as a tool for analyzing path-dependent macrodynamics," Structural Change and Economic Dynamics, Elsevier, vol. 38(C), pages 25-37.
    2. Emanuele Russo, 2017. "Harrodian instability in decentralized economies: an agent-based approach," LEM Papers Series 2017/17, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

    More about this item

    Keywords

    Systemic risk; crash; herding; Bayesian learning; endogenous money; preferential attachment; agent-based models.;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • G01 - Financial Economics - - General - - - Financial Crises
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • B16 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Quantitative and Mathematical
    • C00 - Mathematical and Quantitative Methods - - General - - - General

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