Large and uncertain heterogeneity of expectations: stability of equilibrium from a policy maker standpoint

Domenico Colucci (), Matteo Vigna and Vincenzo Valori
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Domenico Colucci: University of Florence
Matteo Vigna: University of Florence

Journal of Economic Interaction and Coordination, 2022, vol. 17, issue 1, No 15, 319-348

Abstract: Abstract We study the dynamic behavior of heterogeneous markets with many types of agents. In particular this paper aims at studying the effects of a change in the number n of agents, who are possibly different in terms of the rule they employ to forecast, on the long-run value of a relevant state variable. On the one hand we show that a heterogeneous agents model cannot be by and large traced back to an equivalent average representative-agent model. This complicates the possibility of easily reducing large and complex models to simpler and analytically tractable ones. On the other hand, under fairly general conditions, we characterize a class of models in which the probability of convergence to the steady state becomes either one or zero as n grows. This fact has positive implications for a policy maker committed to the goal of stabilizing the economy.

Keywords: Large; multi-agent; system; Heterogeneous; expectations; Discrete-time; dynamical; systems; Expectations; feedback; Model; uncertainty (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1007/s11403-021-00335-4

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