Modeling Maximum Entropy and Mean-Field Interaction in Macroeconomics

Corrado Di Guilmi, Mauro Gallegati and Simone Landini

No 2008-36, Economics Discussion Papers from Kiel Institute for the World Economy (IfW Kiel)

Abstract: The representation of the economic system, from a complexity perspective, focuses on interactions among heterogeneous agents in conditions of uncertainty. Heterogeneity entails asymmetric reactions to shocks and, through interaction mechanisms and feedback loops at micro, macro and meso level, these diverse reactions influence behaviours of other agents. Such a system cannot be modelled with mainstream economics' tools. In this work we propose a stochastic dynamic model with heterogeneous firms. Their responses to stochastic shocks, in order to maximize profit, modifies their financial ratios, determining in this way the evolution of the system. The model is analytically solved by means of maximum entropy maximization and master equation's solution techniques (Aoki and Yoshikawa, 2006).

Keywords: Business cycles; heterogeneity; financial fragility; stochastic aggregation (search for similar items in EconPapers)
JEL-codes: E1 E6 (search for similar items in EconPapers)
Date: 2008
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:ifwedp:7453

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