Complex network effects on price setting: an agent-based computational approach

Abstract

We present an adaptation of a new Keynesian model into an agent-based computational model, accounting for the importance of heterogeneity, interaction and bounded rationality in problems such as price setting and expectations formation. We evaluate the evolution of the distribution of price setting strategy frequencies, which agents might choose on each period between inflationary, neutral or deflationary, a process based on private and social features of agents’ utility functions. In addition, we consider the network’s topological structure and find that the regular network model fails in replicating exactly the new Keynesian model’s original results, while the complex network model presents results in accordance with the originals.