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Multi-agent modeling and simulation of a sequential monetary production economy

Marco Raberto () and Silvano Cincotti ()

No 260, Computing in Economics and Finance 2004 from Society for Computational Economics

Abstract: In this paper, we propose a heterogeneous interacting agent model of a sequential monetary production economy. We use a basic dynamic flow model in an interacting agent context. The economy is assumed to be closed. There are three classes of agents: a single homogeneous representative consumer, heterogeneous firms and a banking system. Bounded rationality agents make decisions by optimizing an objective function based on expectations about the future formed on past data. There are three asset classes (or debts): a single homogeneous physical good, money and debt securities. The homogeneous commodity is produced by firms and, if saved, increases their capital stock. Firms issue debts to finance growth. Firms are homogeneous as regarding marginal costs of production but are heterogeneous relative to their objective functions. Firms make different investment decisions that can ultimately result in the firm's growth or bankruptcy. The income of the homogeneous consumer depends on wage earnings, interest on debt securities and firms profit. Consumers spend their income to purchase consumption goods and corporate debt; money is also considered a reserve of value. Portfolio allocation depends on the interest rate. The money supply is exogenous and is the main control parameter of the system. The model is able to reproduce endogenous large scale economic fluctuations by means of the interplay between money supply and the interactions of heterogeneous agents.

Keywords: heterogeneous agents; financial markets and the macroeconomy; computer simulation (search for similar items in EconPapers)
JEL-codes: D92 E17 E44 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-cmp, nep-mac and nep-mon
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Working Paper: Multi-agent modeling and simulation of a sequential monetary production economy (2005) Downloads
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