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Weird Ties? : Growth, Cycles and Firms Dynamics in an Agent Based-Model with Financial Market Imperfections


  • Domenico Delli Gatti
  • Mauro Gallegati


The paper investigates how the interplay between business cycles and long-run growth shapes the dynamics of economies characterized by financial market imperfections. Most of standard economic literature has centered the analysis of decentralized economies on the representative agent hypothesis (REH), often treating short-run and long-run phenomena with distinct sets of models. However models based on the REH have encountered increasing difficulties in accounting for many observed regularities (e.g. the properties of firms and countries growth rates distributions). We propose a simple agent-based model with financial market imperfections and costly-adoption of new technologies which is able to jointly replicate many stylized facts characterizing macroeconomic time-series as well as properties of firms size and firms growth rates distributions. Such regularities emerge from the nested dynamics between short-run demand shocks and long-run productivity shocks. We show that, if unequal access to credit is assumed, productivity shocks have asymmetric effects in the short run. Therefore they can reinforce or weaken the dynamics already induced by demand shocks. Moreover, credit constraints reduce firms" ability to afford better technologies and to smooth the impact of adverse shocks. Thus, even small demand shocks can cause large and persistent fluctuations

Suggested Citation

  • Domenico Delli Gatti & Mauro Gallegati, 2004. "Weird Ties? : Growth, Cycles and Firms Dynamics in an Agent Based-Model with Financial Market Imperfections," Computing in Economics and Finance 2004 288, Society for Computational Economics.
  • Handle: RePEc:sce:scecf4:288

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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

    More about this item


    Financial Market Imperfections; Business Fluctuations; Economic Growth; Firm Size; Firm Growth; Agent-Based Model;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms


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