A new approach to business fluctuations: heterogeneous interacting agents, scaling laws and financial fragility

Authored by DD Gatti, C Di Guilmi, E Gaffeo, A Palestrini

Date Published: 2005-04

DOI: 10.1016/j.jebo.2003.10.012

Sponsors: No sponsors listed

Platforms: Swarm

Model Documentation: Other Narrative Flow charts Mathematical description

Model Code URLs: Model code not found

Abstract

In this paper, we discuss a scaling approach to business fluctuations. Our starting point consists in recognizing that concepts and methods derived from physics have allowed economists to (re)discover a set of stylized facts which have to be satisfactorily accounted for in their models. Standard macroeconomics, based on a reductionist approach centered on the representative agent, is definitely badly equipped for this task. On the contrary, we show that a simple financial fragility agent-based model, based on complex interactions of heterogeneous agents, is able to replicate a large number of scaling type stylized facts with a remarkable high degree of statistical precision. (c) 2004 Elsevier B.V. All rights reserved.

Tags

Agent-based model Business Fluctuations power law distribution