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No Man is an Island: The Impact of Heterogeneity and Local Interactions on Macroeconomic Dynamics

Mattia Guerini, Mauro Napoletano () and Andrea Roventini

No 2016-18, Sciences Po publications from Sciences Po

Abstract: We develop an agent-based model in which heterogeneous firms and households interact in labor and good markets according to centralized or decentralized search and matching protocols. As the model has a deterministic backbone and a full-employment equilibrium, it can be directly compared to Dynamic Stochastic General Equilibrium (DSGE) models. We study the effects of negative productivity shocks by way of impulse-response func- tions (IRF). Simulation results show that when search and matching are centralized, the economy is always able to return to the full employment equilibrium and IRFs are similar to those generated by DSGE models. However, when search and matching are local, co- ordination failures emerge and the economy persistently deviates from full employment. Moreover, agents display persistent heterogeneity. Our results suggest that macroeco- nomic models should explicitly account for agents’ heterogeneity and direct interactions

Keywords: Agent-based model; Local interactions; Heterogenous agents; DGSE Model (search for similar items in EconPapers)
JEL-codes: E3 E32 E37 (search for similar items in EconPapers)
Date: 2016-06
New Economics Papers: this item is included in nep-cmp, nep-dge, nep-mac, nep-net, nep-ore and nep-ure
References: View references in EconPapers View complete reference list from CitEc
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Related works:
Journal Article: No man is an Island: The impact of heterogeneity and local interactions on macroeconomic dynamics (2018) Downloads
Working Paper: No man is an island: the impact of heterogeneity and local interactions on macroeconomics dynamics (2018) Downloads
Working Paper: No man is an island: the Impact of Heterogeneity and local interactions on Macroeconomic Dynamics (2016) Downloads
Working Paper: No Man Is an Island: The Impact of Heterogeneity and Local Interactions on Macroeconomic Dynamics (2016) Downloads
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