Real and financial crises in the Keynes-Kalecki structuralist model: An agent-based approach

William Gibson and Mark Setterfield

No 1517, Working Papers from New School for Social Research, Department of Economics

Abstract: Agent-based models are inherently microstructures - with their attention to agent behavior in a field context - and only aggregate up to systems with recognizable macroeconomic characteristics. One might ask why the traditional Keynes-Kalecki or structuralist (KKS) model would bear any relationship to the multi-agent modeling approach. This paper shows how KKS models might benefit from agent-based microfoundations, without sacrificing traditional macroeconomic themes, such as aggregate demand, animal sprits and endogenous money. Above all, the integration of the two approaches gives rise to the possibility that a KKS system - stable over many consecutive time periods - might lurch into an uncontrollable downturn, from which a recovery would require outside intervention. As a by-product of the integration of these two popular approaches, there emerges a cogent analysis of the network structure necessary to bind real and financial agents into a integrated whole. It is seen, contrary to much of the existing literature, that a highly connected financial system does not necessarily lead to more crashes of the integrated system.

Keywords: Systemic risk; crash; herding; Bayesian learning; endogenous money; preferential attachment; agent-based models. (search for similar items in EconPapers)
JEL-codes: B16 C00 D58 E37 G01 G12 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2015-08
New Economics Papers: this item is included in nep-cmp, nep-hme, nep-hpe, nep-mac and nep-pke
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:new:wpaper:1517

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