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

By Domenico Delli Gatti, C. D. Guilmi, Edoardo Gaffeo, Gianfranco Giulioni, Mauro Gallegati, Antonio Palestrini. 2003

330 citations recorded by the source corpus.

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.

Subfields: Condensed Matter Physics, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/babb28c01b3f1f3cfa3815db1902a40fbc90005f

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In Condensed Matter Physics

In Economics and Econometrics

Citations in the corpus

Empirical Validation of Agent-Based Models: Alternatives and Prospects (2007, methodology): “16See for example the calibration exercises performed by Bianchi et al. (2005) on the CATS model developed in a series of papers by Gallegati et al. (2003, 2005).”
Income Distribution, Credit and Fiscal Policies in an Agent-Based Keynesian Model (2013, methodology): “The robustness of the model is checked against its capability to jointly account for a large set of empirical regularities both at the micro level (e.g. ﬁrm size and growth-rate distributions, productivity dispersions, ﬁrm investment patterns) and at the 1 For germane ABMs, see Verspagen (2002); Del”
Credit Chains and Bankruptcy Propagation in Production Networks (2007, background): “Previous multi-agent models of financial fragility (Delli Gatti et al., 2005) have been able to reproduce stylized facts of firms’ demography and aggregate output in a framework in which firms go bankrupt because of unexpected price or cost fluctuations.”
Schumpeter meeting Keynes: A policy-friendly model of endogenous growth and business cycles (2010, background): “An obvious direction of development ought to address an explicit account of credit and financial markets (a somewhat germane attempt in this direction is in Delli Gatti et al., 2005, broadly along Stiglitzian lines).”
A Critical Guide to Empirical Validation of Agent-Based Models in Economics: Methodologies, Procedures, and Open Problems (2007, methodology): “10 For a notable example of calibration on AB models, see Bianchi, C. et al. (Unpublished manuscript), who perform calibration on the CATS model developed in a series of papers by Gallegati et al. (2003, 2005) .”