- Series: New Economic Windows
- Paperback: 114 pages
- Publisher: Springer; Softcover reprint of hardcover 1st ed. 2008 edition (October 28, 2010)
- Language: English
- ISBN-10: 8847015618
- ISBN-13: 978-8847015616
- Product Dimensions: 6.1 x 0.3 x 9.2 inches
- Shipping Weight: 8 ounces (View shipping rates and policies)
- Average Customer Review: 4.0 out of 5 stars See all reviews (1 customer review)
- Amazon Best Sellers Rank: #4,114,884 in Books (See Top 100 in Books)
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Emergent Macroeconomics: An Agent-Based Approach to Business Fluctuations (New Economic Windows) Softcover reprint of hardcover 1st ed. 2008 Edition
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From the Back Cover
This book contributes substantively to the current state-of-the-art of macroeconomics by providing a method for building models in which business cycles and economic growth emerge from the interactions of a large number of heterogeneous agents. Drawing from recent advances in agent-based computational modeling, the authors show how insights from dispersed fields like the microeconomics of capital market imperfections, industrial dynamics and the theory of stochastic processes can be fruitfully combined to improve our understanding of macroeconomic dynamics.
This book should be a valuable resource for all researchers interested in analyzing macroeconomic issues without recurring to a fictitious representative agent.
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Top Customer Reviews
Because of the lack of dynamics in the standard Walrasian model, macroeconomic theories that depend on this model must perform massive simplifications in order to investigate out-of-equilibrium behavior. The reason these models are such a mess is that they take it for granted that public prices exist (they do not) and that we can analyze the market economy as if individuals never interact, but rather interaction only with private prices. This, of course, is completely incorrect, as I explain above. However, with this assumption, it is clearly permissible simply to aggregate all economic actors of the same type into a "representative agent" having the average characteristics of that type of agent. From this is born the Keynesian consumption, investment, and government sectors, from which the standard Keynesian models flow. For the rational expectations macro models, we have a similar aggregation, with the completely crazy assumption that an aggregate "representative agent" will satisfy the condition of "rational expectations" theory, as though the aggregation of "rational agents" is prima facie an aggregate rational agent. The intellectual value of these assumptions is rather meager.
This fine book, which was in preparation at the time of appearance of my Economic Journal paper, is quite in agreement with my findings, laying blame on the "representative agent" assumption, and using agent-based modeling (abm) to investigate macroeconomic dynamics. However, whereas I took individuals as the unit of analysis, the authors allow firms to fill this role. They use empirical data on within-industry firm heterogeneity to model the population of firms, and assume asymmetric information among firms. This leads them to a financial accelerator model of financial fragility with great similarity to a model proposed by Greenwald and Stiglitz in 1993 (Bruce Greenwald and Joseph E. Stiglitz, "Financial Market Imperfections and Business Cycles", Quarterly Journal of Economics (1993):77-114). Finance is central in their model because the absence of forward markets forces firms to rely on credit to finance investment that matures only across time periods.
Based on careful industry research, the authors' abm is populated with firms whose size distribution take the form of a power law density (Zipf's Law), and firm growth rates follow a Laplace (double exponential) rather than a normal distribution. Such a distribution has `fat tails' that imply more instability than in a system with normally distributed growth densities. Indeed, they show that normally distributed shocks give rise to power law distributions and a Pareto shaped firm size distribution. This is a quite nice finding, and surprising given the degree of aggregation of their agent-based economy (they assume only two sectors, firms and banks, and no individual agents). Clearly individual interactions underlie the power law assumptions concerning firm size and the Laplace distribution of growth rates.