Is the market really a good teacher?

Abstract

This paper proposes to model market mechanisms as a collective learning process for firms in a complex adaptive system, namely Jamel, an agent-based, stock-flow consistent macroeconomic model. Inspired by Alchian's (1950) "blanketing shotgun process" idea, our learning model is an ever-adapting process that puts a significant weight on exploration vis-à-vis exploitation. We show that decentralized market selection allows firms to collectively adapt their overall debt strategies to the changes in the macroeconomic environment so that the system sustains itself, but at the cost of recurrent deep downturns. We conclude that, in complex evolving economies, market processes do not lead to the selection of optimal behaviors, as the characterization of successful behaviors itself constantly evolves as a result of the market conditions that these behaviors contribute to shape. Heterogeneity in behavior remains essential to adaptation in such an ever-changing environment. We come to an evolutionary characterization of a crisis, as the point where the evolution of the macroeconomic system becomes faster than the adaptation capabilities of the agents that populate it, and the so far selected performing behaviors suddenly cease to be, and become instead undesirable.

More is different ... and complex! the case for agent-based macroeconomics

“…The complex links between firms' financial decisions, financial markets instability and real dynamics is studied by Seppecher et al (2019) and Meijers et al (2019). The former extends the JAMEL model (Seppecher, 2012;Seppecher and Salle, 2015) and studies the selection process by decentralized markets over firms which adaptively choose their debt strategy in order to finance their investment plans.…”

Stabilizing an unstable complex economy on the limitations of simple rules

“…We elaborate on the Jamel model that we develop in previous contributions (Seppecher & Salle 2015, Seppecher et al 2016, 2017. Figure 1 summarizes the structure of the model, red lines stand for financial flows, and blue ones for real transactions.…”

“…In this paper, we aim to contribute to this ongoing debate on monetary policy reformulation in the wake of the financial crisis. We do so by using an agent-based model (hereafter ABM), namely the Jamel model (Seppecher 2012, Seppecher & Salle 2015, Seppecher et al 2016, 2017. A number of original features makes this framework particularly well-suited for tackling those questions.…”

What drives markups? Evolutionary pricing in an agent-based stock-flow consistent macroeconomic model

“…More precisely, we elaborate on the model of Seppecher et al (2016) and its "leverage engine", which generates endogenous business cycles. We extend this model to a multi-sector economy, in which production and consumption involve three types of goods, in order to model an economy structured by strong interdependence relationships, both at the real and the monetary levels, between competing firms.…”

“…Baseline scenario -financial indicators the amount of doubtful debts (seeFigure 4h). We refer the reader here toSeppecher et al (2016) for an extensive discussion of the firms' investment and debt behaviors…”