A New Approach to Business Fluctuations: Heterogeneous Interacting Agents, Scaling Laws and Financial Fragility

Elsevier B.V.
Publication Type:
Journal Article
Journal of Economic Behavior and Organization, 2005, 56 (4), pp. 489 - 512
Issue Date:
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In this paper, we discuss a scaling approach to business fluctuations. Our starting point consists in recognizing that concepts and methods derived from physics have allowed economists to (re)discover a set of stylized facts which have to be satisfactorily accounted for in their models. Standard macroeconomics, based on a reductionist approach centered on the representative agent, is definitely badly equipped for this task. On the contrary, we show that a simple financial fragility agent-based model, based on complex interactions of heterogeneous agents, is able to replicate a large number of scaling type stylized facts with a remarkable high degree of statistical precision.
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