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No Man is an Island: The Impact of Heterogeneity and Local Interactions on Macroeconomic Dynamics

Author

Listed:
  • Mattia Guerini

    (Scuola Superiore Sant'Anna)

  • Mauro Napoletano

    (Observatoire français des conjonctures économiques)

  • Andrea Roventini

    (Laboratory of Economics and Management (LEM))

Abstract

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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  • Mattia Guerini & Mauro Napoletano & Andrea Roventini, 2016. "No Man is an Island: The Impact of Heterogeneity and Local Interactions on Macroeconomic Dynamics," Sciences Po publications 2016-18, Sciences Po.
  • Handle: RePEc:spo:wpmain:info:hdl:2441/20d1ncsepb9ssq3b3v4s6nbc41
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    Cited by:

    1. repec:eee:dyncon:v:82:y:2017:i:c:p:125-141 is not listed on IDEAS
    2. Guerini, Mattia & Moneta, Alessio, 2017. "A method for agent-based models validation," Journal of Economic Dynamics and Control, Elsevier, vol. 82(C), pages 125-141.
    3. repec:spr:italej:v:3:y:2017:i:3:d:10.1007_s40797-017-0065-z is not listed on IDEAS
    4. 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.
    5. Emanuele Ciola & EDOARDO GAFFEO & Mauro Gallegati, 2018. "Matching frictions, credit reallocation and macroeconomic activity: how harmful are financial crises?," DEM Working Papers 2018/05, Department of Economics and Management.
    6. Giorgio Fagiolo & Mattia Guerini & Francesco Lamperti & Alessio Moneta & Andrea Roventini, 2017. "Validation of Agent-Based Models in Economics and Finance," LEM Papers Series 2017/23, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    7. repec:ijm:journl:v10:y:2017:i:2:p:86-102 is not listed on IDEAS
    8. Giovanni Dosi & Andrea Roventini, 2017. "Agent-Based Macroeconomics and Classical Political Economy: Some Italian Roots," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 3(3), pages 261-283, November.

    More about this item

    Keywords

    Agent-based model; Local interactions; Heterogenous agents; DGSE Model;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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