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Weird Ties? Growth, Cycles and Firm Dynamics in an Agent-Based Model with Financial-Market Imperfections

Author

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  • Mauro Napoletano
  • Domenico Delli Gatti
  • Giorgio Fagiolo
  • Mauro Gallegati

Abstract

This paper studies how the interplay between technological shocks and financial variables shapes the properties of macroeconomic dynamics. Most of the existing literature has based the analysis of aggregate macroeconomic regularities on the representative agent hypothesis (RAH). However, recent empirical research on longitudinal micro data sets has revealed a picture of business cycles and growth dynamics that is very far from the homogeneous one postulated in models based on the RAH. In this work, we make a preliminary step in bridging this empirical evidence with theoretical explanations. We propose an agent-based model with heterogeneous firms, which interact in an economy characterized by financial-market imperfections and costly adoption of new technologies. Monte-Carlo simulations show that the model is able jointly to replicate a wide range of stylised facts characterizing both macroeconomic time-series (e.g. output and investment) and firms' microeconomic dynamics (e.g. size, growth, and productivity).

Suggested Citation

  • Mauro Napoletano & Domenico Delli Gatti & Giorgio Fagiolo & Mauro Gallegati, 2005. "Weird Ties? Growth, Cycles and Firm Dynamics in an Agent-Based Model with Financial-Market Imperfections," LEM Papers Series 2005/03, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    • Handle: RePEc:ssa:lemwps:2005/03
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    More about this item

    Keywords

    Financial Market Imperfections; Business Fluctuations; Economic Growth; Firm Size; Firm Growth; Productivity Growth; Agent-Based Models.;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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