2019/01 | LEM Working Paper Series | ||||||||||||||||
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More is Different ... and Complex! The Case for Agent-Based Macroeconomics |
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Giovanni Dosi and Andrea Roventini |
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Keywords | |||||||||||||||||
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Macroeconomics, Economic Policy, Keynesian Theory, New Neoclassical
Synthesis, New Keynesian Models, DSGE Models, Agent-Based Evolutionary
Models, Complexity Theory, Great Recession, Crisis.
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JEL Classifications | |||||||||||||||||
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B41, B50, E32, E52
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Abstract | |||||||||||||||||
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This work nests the Agent-Based macroeconomic perspective into the
earlier history of macroeconomics. We discuss how the discipline in
the 70’s took a perverse path relying on models grounded on fictitious
rational representative agent in order to try to pathetically
circumvent aggregation and coordination problems. The Great Recession
was a natural experiment for macroeconomics, showing the inadequacy of
the predominant theoretical framework grounded on DSGE models. After
discussing the pathological fallacies of the DSGE-based approach, we
claim that macroeconomics should consider the economy as a complex
evolving system, i.e. as an ecology populated by heterogenous agents,
whose far-from-equilibrium interactions continuously change the
structure of the system. This in turn implies that more is different:
macroeconomics cannot be shrink to representative-agent micro, but
agents’ complex interactions lead to emergence of new phenomena and
hierarchical structure at the macro level. This is what is taken into
account by agent-based models, which provide a novel way to model
complex economies from the bottom-up, with sound empirically-based
micro-foundations. We present the foundations of Agent-Based
macroeconomics and we discuss how the contributions of this special
issue push its frontier forward. Finally, we conclude by discussing
the ways ahead for the fully acknowledgement of agent-based models as
the standard way of theorizing in macroeconomics.
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