TY - UNPB

T1 - E Pluribus Unum: Macroeconomic Modelling for Multi-agent Economies

AU - Assenza, Tiziana

AU - Delli Gatti, Domenico

PY - 2012

Y1 - 2012

N2 - From the point of view of the average macroeconomist, agent based modelling has an obivious drawback: It makes impossible to think in aggregate terms. The modeller, in fact, can reconstruct aggregate variables only "from the bottom up" by summing the individual quantities. As a consequence the interpretation of the trasmission mechanism of shocks is somehow arbitrary. We propose a modelling strategy which reduces the dimensionality of an agent based framework by replacing the actual distributional features (in our model: the distribution of firms'financial conditions) with the first and second moments of the distribution itself. The main message is that the di¢ culty of thinking in macroeconomic terms when dealing with multi-agent economies
can be circumvented by means of an appropriate aggregation procedure --which we label the Modified-Representative Agent -- such that
the distribution of agents'characteristics can be approximated by (at least) the (first and second) moments of the distribution. The moments of the distribution play the role of macroeconomic variables. We put this strategy at work in a model of the financial accelerator in which firms' heterogeneous degree of financial robustness affect
investment in a bankruptcy risk context (à la Greenwald-Stiglitz).

AB - From the point of view of the average macroeconomist, agent based modelling has an obivious drawback: It makes impossible to think in aggregate terms. The modeller, in fact, can reconstruct aggregate variables only "from the bottom up" by summing the individual quantities. As a consequence the interpretation of the trasmission mechanism of shocks is somehow arbitrary. We propose a modelling strategy which reduces the dimensionality of an agent based framework by replacing the actual distributional features (in our model: the distribution of firms'financial conditions) with the first and second moments of the distribution itself. The main message is that the di¢ culty of thinking in macroeconomic terms when dealing with multi-agent economies
can be circumvented by means of an appropriate aggregation procedure --which we label the Modified-Representative Agent -- such that
the distribution of agents'characteristics can be approximated by (at least) the (first and second) moments of the distribution. The moments of the distribution play the role of macroeconomic variables. We put this strategy at work in a model of the financial accelerator in which firms' heterogeneous degree of financial robustness affect
investment in a bankruptcy risk context (à la Greenwald-Stiglitz).

KW - Business Fluctuations

KW - Financial Fragility

KW - Heterogeneity

KW - Stochastic Aggregation

KW - Business Fluctuations

KW - Financial Fragility

KW - Heterogeneity

KW - Stochastic Aggregation

UR - http://hdl.handle.net/10807/32836

M3 - Working paper

BT - E Pluribus Unum: Macroeconomic Modelling for Multi-agent Economies

ER -