This website uses cookies.

By clicking the "Accept" button or continuing to browse our site, you agree to first-party and session-only cookies being stored on your device to enhance site navigation and analyze site performance and traffic. For more information on our use of cookies, please see our Privacy Policy.

  1. Home
  2. ASSA Annual Meeting
  3. 2021
  4. Preliminary Program
  5. Macro Agent-Based versus DGSE Modeling: A Short History of Two Competing Approaches to Macroeconomics
« Back to Results

Macro Agent-Based versus DGSE Modeling: A Short History of Two Competing Approaches to Macroeconomics

Paper Session

Tuesday, Jan. 5, 2021 10:00 AM - 12:00 PM (EST)

Hosted By: History of Economics Society
  • Chair: David Colander, Middlebury College

Is Cross-Fertilization Possible in Macroeconomics? DSGE Confronts MAB Models

Muriel Dal Pont Legrand
,
University of Cote d’Azur, French National Centre for Scientific Research, and GREDEG

Abstract

This paper proposes to examine the nature of influence that Macro-Agents Based Models (MABM) might be having on the macroeconomics research agenda. First, we propose to identify the different topics investigated by the DSGE and MABM approaches and then determine whether there is convergence in their respective research agendas. Second, since this (potential) influence might be superficial, we propose to examine to what extent more precise ideas or concepts initially developed by MABM have in fine been absorbed - and how - by DSGE models. We show first that the DSGE approach is less monolithic than at the time of the New Synthesis: indeed, a large and a growing literature has developed at the margins of the core DSGE approach which includes elements of heterogeneous agent modeling and social interactions, bounded rationality, macroeconomics experiments, expectations formation, learning etc. Next, we acknowledge the variety of possible degrees of “absorption”: if the core DSGE model assumptions are maintained the absorption process might be limited, but if some of these assumptions are relaxed this allows the emergence of so-called “hybrid” models. In addition, the paper questions the capacity of the current dominant approach to benefit from cross-fertilization and to more precisely define the nature of that process.

Making a breach: the incorporation of agent-based models into the Bank of England’s toolkit

Romain Plassard
,
Paris Dauphine University

Abstract

After the financial crisis of 2008, several central banks incorporated agent-based models (ABMs) into their toolkit. The Bank of England (BoE) is a case in point. Since 2008, it has developed four ABMs. Under which conditions could ABMs breach the walls of the BoE? Then, there is the issue of the size of the breach. In which divisions economists used ABMs? Was agent-based modeling used to inform a wide range of policies? Last but not least, there is the issue of the fate of ABMs at the BoE. Is the breach going to narrow or, on the contrary, to widen? What are the forces underlying the deployment of ABMs at the BoE? My article aims to address these issues. I show that institutional reforms were central to the use of ABMs at the BoE. I also show that so far, ABMs have been a marginal tool at the BoE. They were not used to inform monetary policy. Neither were they used to coordinate the BoE’s microprudential, macroprudential, and monetary policies. ABMs were only used to inform the BoE’s macroprudential policy. I conclude the article by examining the conditions for a broader use of ABMs at the BoE.

Agent Based Macroeconomics: A Syncretic View

Domenico Delli Gatti
,
Catholic University of the Sacred Heart

Abstract

In this paper I propose a form of hybridization of Agent Based and NK-DSGE macroeconomics along two profiles. First I will show that – contrary to the conventional wisdom -- the micro-foundations of the main Macroeconomic Agent Based Models (MABMs) rely in a non-negligible way on New Keynesian insights. In many instances behavioral ruled coded into MABMs can be interpreted as streamlined or reduced form variants of optimal rules derived from “first principle” in the New Keynesian literature. This is particularly true in the case of the AB sub-models of borrower/lender interaction (a core element of all MABMs), which rely heavily on insights coming from the financial frictions literature. The current MABMs, however, do not incorporate in any way the notions of market clearing and “equilibrium”. In the second part of the paper I will advertise a line of research on Hybrid MABMs, i.e. streamlined MABMs which rely, at least in part on the notion of macroeconomic equilibrium. I will show a specific example of such a Hybrid MABM and discuss its macro-dynamic properties. Macroeconomic Equilibrium in H-MABMs allows to extract a clear chain of events following a shock – e.g. a fiscal policy shock -- from the complicated and untraceable agents’ interactions which generate the emergent properties of a MABM. Since MABMs are frequently charged with being “black boxes”, the advantage of the hybrid methodology consists in providing a clear “narrative” of the transmission mechanism of shocks in MABMS. This could be a true advancement in making MABMS understandable and therefore acceptable in the profession at large.
JEL Classifications
  • B2 - History of Economic Thought since 1925
  • E3 - Prices, Business Fluctuations, and Cycles