E Pluribus Unum: Macroeconomic Modelling for Multi-agent Economies

Tiziana Assenza and Domenico Delli Gatti

No 2012-08, GREDEG Working Papers from Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), Université Côte d'Azur, France

Abstract: From the point of view of the average macroeconomist, agent based modelling has an obvious 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 transmission 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 difficulty 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 fi nancial accelerator in which fi rms' heterogeneous degree of fi nancial robustness affect investment in a bankruptcy risk context (à la Greenwald-Stiglitz).

Keywords: Financial fragility; heterogeneity; stochastic aggregation; business fluctuations (search for similar items in EconPapers)
JEL-codes: E32 E43 E44 E52 (search for similar items in EconPapers)
Pages: 42 pages
Date: 2012-10
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: E Pluribus Unum: Macroeconomic modelling for multi-agent economies (2013)
Working Paper: E Pluribus Unum: Macroeconomic Modelling for Multi-agent Economies (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:gre:wpaper:2012-08

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