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No man is an island : the impact of heterogeneity and local interactions on macroeconomics dynamics

Author

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  • Mattia Guerini

    (SSSUP - Scuola Universitaria Superiore Sant'Anna = Sant'Anna School of Advanced Studies [Pisa], OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Mauro Napoletano

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

  • Andrea Roventini

    (OFCE - Observatoire français des conjonctures économiques (Sciences Po) - Sciences Po - Sciences Po)

Abstract

We develop an agent-based model in which heterogeneous firms and households interact in labor and good markets according to centralized or decentralized search and matching protocols. As the model has a deterministic backbone and a full-employment equilibrium, it can be directly compared to Dynamic Stochastic General Equilibrium (DSGE) models. We study the effects of negative productivity shocks by way of impulse-response functions (IRF). Simulation results show that when search and matching are centralized, the economy is always able to return to the full employment equilibrium and IRFs are similar to those generated by DSGE models. However, when search and matching are local, coordination failures emerge and the economy persistently deviates from full employment. Moreover, agents display persistent heterogeneity. Our results suggest that macroeconomic models should explicitly account for agents' heterogeneity and direct interactions.

Suggested Citation

  • Mattia Guerini & Mauro Napoletano & Andrea Roventini, 2018. "No man is an island : the impact of heterogeneity and local interactions on macroeconomics dynamics," SciencePo Working papers Main hal-03609582, HAL.
    • Handle: RePEc:hal:spmain:hal-03609582
    DOI: 10.1016/j.econmod.2017.05.004
    Note: View the original document on HAL open archive server: https://sciencespo.hal.science/hal-03609582
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    More about this item

    Keywords

    Agent based model; Local interactions; Heterogeneous agents; DGSE Model;
    All these keywords.

    JEL classification:

    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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