2007/02 | LEM Working Paper Series | |
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Production Structure and Economic Fluctuations |
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Tommaso Ciarli, Marco Valente |
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Keywords | ||
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Production structure, micro- and macro-volatility, simulation models
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JEL Classifications | ||
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E32, E37, C63, C67, D57
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Abstract | ||
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We aim at contributing to the debate on the mechanisms and properties
of economic fluctuations. We consider a crucial aspect among
many thought to influence this ubiquitous and extremely relevant phenomenon:
the interaction structure that characterises the organisation
of production, that is, the production relation among sectors of a system.
We build — and simulate — a very simple model representing an
input–output system where sectors/firms adapt production and desired
levels of stocks. Their output serves both an exogenous final demand
and the intermediate demand solicited by the other sectors of the system.
Series of simulation runs allow to derive relevant and non–obvious
conclusions concerning the levels and, more importantly, the volatility
of economic activity, as an outcome of the same, inherent, economic
structure.
We claim that the results that we obtain through the highly abstract
representation we use, provide useful intuitions on the working
of economic cycles, to be later integrated by further studies.
As a by–product of our analysis, we also suggest that the methodology
we adopt can provide valuable insights by allowing a detailed
analysis of the time path generated in the artificial systems, and therefore
assessing with precisions the same mechanisms that affect real–
world systems. The natural following step, left for further research, is
to investigate how those mechanisms are empirically generated.
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