Reflections on modern macroeconomics: Can we travel along a safer road?

Abstract

In this paper we sketch some reflections on the pitfalls and inconsistencies of the research program—currently dominant among the profession—aimed at providing microfoundations to macroeconomics along a Walrasian perspective. We argue that such a methodological approach constitutes an unsatisfactory answer to a well-posed research question, and that alternative promising routes have been long mapped out but only recently explored. In particular, we discuss a recent agent-based, truly non-Walrasian macroeconomic model, and we use it to envisage new challenges for future research

Fiscal policy and business cycle characteristics in a heterogeneous agent macro model

“…3 CATS models have been shown to exhibit self-organizing stable states as well as conditions where small idiosyncratic shocks may push an economy into instability. Delli and Gaffeo et al (2007) describe CATS as sequential economies founded on bounded rationality which result in spontaneous market order. 4 CATS models are built on the foundation of individual rule-based behavior in a market environment, but lack a centralized solving mechanism that would be observed in a general equilibrium model.…”

Adaptive Microfoundations for Emergent Macroeconomics

“…Other exemplifications of the C@S approach can be found in Delli Gatti et al [2005], Gaffeo et al [2007], and Russo et al [2007]. The common modeling strategy is built on two pillars.…”

Increasing Inequality and Financial Fragility in an Agent Based Macroeconomic Model

“…In general, the idea is to start from simple (adaptive) individual rules of behaviour in order to reproduce the emergence of aggregate regularities (Tesfatsion and Judd, 2006) from the bottom up (Epstein and Axtell, 1996). In other words, we follow a constructive approach to macroeconomics (Gaffeo et al 2007). In our setting, agents are boundedly rational and follow (relatively) simple rules of behaviour in an incomplete and asymmetric information context: households try to buy consumption goods from the cheapest supplier, they also try to work in the firm offering the highest wage; firms try to accumulate profits by selling their products to households (they set the price according to their individual excess demand) and hiring cheapest workers; workers update the asked wage according to their occupational status (upward if employed, downward if unemployed); households' saving goes into bank deposits; given the Basilea-like regulatory constraints, banks extend credit to finance firms' production; firms choose the banks offering lowest interest rates, while households deposit money in the banks offering the highest interest rates.…”