Price dynamics, financial fragility and aggregate volatility

Authored by Herbert Gintis, Simone Landini, Antoine Mandel, Mauro Gallegati

Date Published: 2015

DOI: 10.1016/j.jedc.2014.11.001

Sponsors: European Union Institute for New Economic Thinking

Platforms: MATLAB

Model Documentation: Other Narrative Mathematical description

Model Code URLs: https://sites.google.com/site/antoinedavidmandel/codes

Abstract

Within a general equilibrium framework a la (Long and Plosser, 1983), we investigate the dynamics emerging from the interactions of households and firms that are adaptive price setters and financially constrained. Adaptive price-setting behavior induces micro-founded out-of-equilibrium dynamics along which agents become heterogeneous in terms of prices and wealth. The stringency of the financial constraints determines the regime into which the model settles: either an equilibrium one or a disequilibrium one conductive to financial fragility and aggregate volatility. In this setting, we investigate how the structure of the production network affects the emergence of aggregate volatility from micro-level price and financial shocks, hence providing a dynamical counterpart to recent results of Acemoglu et al. (2012). (C) 2014 Elsevier B.V. All rights reserved.

Tags

Network Distributions systems Model Business cycles Interacting agents Credit Fluctuations Origins