Agent-based models for economic policy design: Two illustrative examples

Frank Westerhoff and Reiner Franke

No 88, BERG Working Paper Series from Bamberg University, Bamberg Economic Research Group

Abstract: With the help of two examples, we illustrate the usefulness of agent-based models as a tool for economic policy design. In our first example, we apply a financial market model in which the order flow of speculators, relying on technical and fundamental analysis, generates intricate price dynamics. In our second example, we apply a Keynesian-type goods market model in which the investment behavior of firms, relying on extrapolative and regressive predictors, generates complex business cycles. We add a central authority to these two setups and explore the impact of simple intervention strategies on the model dynamics. Based on these experiments, we conclude that agent-based models may help us to understand how markets function and to evaluate the effectiveness of various stabilization policies.

Keywords: Agent-based models; Economic policy design; Financial markets; Goods markets; Simulation analysis (search for similar items in EconPapers)
JEL-codes: C63 D84 E32 G12 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-cmp
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Citations: View citations in EconPapers (33)

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