No man is an island: the Impact of Heterogeneity and local interactions on Macroeconomic Dynamics

Mattia Guerini, Mauro Napoletano and Andrea Roventini

No 2016-18, Documents de Travail de l'OFCE from Observatoire Francais des Conjonctures Economiques (OFCE)

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.

Keywords: Agent-based model; Local interaction; Heterogeneous agents; DGSE Model (search for similar items in EconPapers)
JEL-codes: E03 E32 E37 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-hme and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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Related works:
Journal Article: No man is an Island: The impact of heterogeneity and local interactions on macroeconomic dynamics (2018)
Working Paper: No man is an island: the impact of heterogeneity and local interactions on macroeconomics dynamics (2018)
Working Paper: No man is an island: the impact of heterogeneity and local interactions on macroeconomics dynamics (2018)
Working Paper: No Man is an Island: The Impact of Heterogeneity and Local Interactions on Macroeconomic Dynamics (2016)
Working Paper: No Man is an Island: The Impact of Heterogeneity and Local Interactions on Macroeconomic Dynamics (2016)
Working Paper: No Man Is an Island: The Impact of Heterogeneity and Local Interactions on Macroeconomic Dynamics (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:fce:doctra:1618

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