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More is different... and complex! the case for agent-based macroeconomics

Giovanni Dosi () and Andrea Roventini

Journal of Evolutionary Economics, 2019, vol. 29, issue 1, 1-37

Abstract: Abstract This work nests the Agent-Based macroeconomic perspective into the earlier history of macroeconomics. We discuss how the discipline in the 70’s took a perverse path relying on models grounded on fictitious rational representative agent in order to try to pathetically circumvent aggregation and coordination problems. The Great Recession was a natural experiment for macroeconomics, showing the inadequacy of the predominant theoretical framework grounded on DSGE models. After discussing the pathological fallacies of the DSGE-based approach, we claim that macroeconomics should consider the economy as a complex evolving system, i.e. as an ecology populated by heterogenous agents, whose far-from-equilibrium interactions continuously change the structure of the system. This in turn implies that more is different: macroeconomics cannot be shrink to representative-agent micro, but agents’ complex interactions lead to emergence of new phenomena and hierarchical structure at the macro level. This is what is taken into account by agent-based models, which provide a novel way to model complex economies from the bottom-up, with sound empirically-based microfoundations. We present the foundations of Agent-Based macroeconomics and we discuss how the contributions of this special issue push its frontier forward. Finally, we conclude by discussing the ways ahead for the fully acknowledgement of agent-based models as the standard way of theorizing in macroeconomics.

Keywords: Macroeconomics; Economic policy; Keynesian theory; New neoclassical synthesis; New Keynesian models; DSGE models; Agent-based evolutionary models; Complexity theory; Great recession; Crisis (search for similar items in EconPapers)
JEL-codes: B41 B50 E32 E52 (search for similar items in EconPapers)
Date: 2019
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