Agent Based-Stock Flow Consistent Macroeconomics: Towards a Benchmark Model

Abstract

The paper moves from a discussion of the challenges posed by the crisis to standard macroeconomics and the solutions adopted within the DSGE community. Although several recent improvements have enhanced the realism of standard models, we argue that major drawbacks still undermine their reliability. In particular, DSGE models still fail to recognize the complex adaptive nature of economic systems, and the implications of money endogeneity. The paper argues that a coherent and exhaustive representation of the inter-linkages between the real and financial sides of the economy should be a pivotal feature of every macroeconomic model and proposes a macroeconomic framework based on the combination of the Agent Based and Stock Flow Consistent approaches. The papers aims at contributing to the nascent AB-SFC literature under two fundamental respects: first, we develop a fully-decentralized AB-SFC model with several innovative features, and we thoroughly validate it in order to check whether the model is a good candidate for policy analysis applications. Results suggest that the properties of the model match many empirical regularities, ranking among the best performers in the related literature, and that these properties are robust across different parameterizations. Second, the paper has also a methodological purpose in that we try to provide a set or rules and tools to build, calibrate, validate, and display AB-SFC models.Keywords: Agent Based Macroeconomics, Stock Flow Consistent Models, Business Cycles, Bank Regulation.JEL Codes: E03, E32, O30 * Corresponding author: a.caiani@eco.univpm.it. This research was supported by the Institute for New Economic Thinking (INET) and the FP7 project MatheMACS. Our work has greatly benefited from comments and suggestions received from other scholars. We are grateful to the participants of the 2014 Workshop of the INET AB-SFC Macroeconomic Program at Monte Conero (Ancona, Italy). A special thanks goes to Steve Phelps for the support he gave us while developing the JMAB platform. We thank our colleagues Ermanno Catullo, Annarita Colasante, Federico Giri, Ruggero Grilli, Antonio Palestrini, Luca Riccetti, Alberto Russo, Gabriele Tedeschi, and Sean Ryan who provided insight and expertise that greatly assisted the research. Finally, we are grateful to the three anonymous referees for their valuable suggenstions that contributed to significantly improve the manuscript. All remaining errors are ours. Is the economic crisis a crisis for Macroeconomics?More than eight years since the onset of the global financial crisis we are still assessing how the crisis should change our view about macroeconomics. The crisis cast serious doubts on the plausibility of standard macroeconomic models -in particular of dynamic stochastic general equilibrium (DSGE) models -and their ability to provide effective policy advices to prevent the occurrence of large-scale economic turmoils, and to tackle their consequences.In a nutshell, the anatomy of the standard DSGE model presents an economy composed ...

Job duration and inequality

“…The corresponding flows are reported in Table 2, which we construct along the lines of the recent SFC-ABM literature (e.g. Caiani et al, 2016). Items representing outflows of value are identified by the minus sign: C is consumption spending, In is the change in inventories (such that total production is Y = C + In), wN is the wage bill, Ψ are taxes levied on the households by the Government to refinance defaulted firms, i is the loan interest rate and r is the return on bank deposits.…”

“…Stock-flow consistency, which has witnessed increasing application in agent-based literature in recent years (e.g. Cincotti et al, 2010;Delli Gatti and Desiderio, 2015;Riccetti et al, 2015;Caiani et al, 2016;Dosi et al, 2017;Mazzocchetti et al, 2018), basically consists in the implementation of precise accounting rules, and is of particular importance to our scope as it provides a correct link between income and wealth.…”

8. The “Schumpeterian” and the “Keynesian” Stiglitz: Learning, Coordination Hurdles, and Growth Trajectories

“…In fact, the ABM route has been increasingly explored by Joe himself (see Caiani et al, 2015, Landini et al, 2015, Dosi et al, 2016a.…”

Methods for forecasting the market penetration of electric drivetrains in the passenger car market

“…Recently, DSGE models have been subject to not insubstantial criticism (cf. Caiani et al, 2016). Integrated assessment models have a long history in environmental sciences and are currently under comprehensive development.…”