Financial Fragility, Industrial Dynamics and Business Fluctuations in an Agent Based Model

Delli Gatti, D; Di Guilmi, C; Gallegati, M; Giulioni, G

Financial Fragility, Industrial Dynamics and Business Fluctuations in an Agent Based Model

Delli Gatti, D Di Guilmi, C

Gallegati, M Giulioni, G

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Publisher:: Cambridge University Press
Publication Type:: Journal Article
Citation:: Macroeconomic Dynamics, 2007, 11 (S1), pp. 62 - 79
Issue Date:: 2007-01

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Field	Value	Language
dc.contributor.author	Delli Gatti, D	en_US
dc.contributor.author	Di Guilmi, C https://orcid.org/0000-0001-7786-039X	en_US
dc.contributor.author	Gallegati, M	en_US
dc.contributor.author	Giulioni, G	en_US
dc.date.issued	2007-01	en_US
dc.identifier.citation	Macroeconomic Dynamics, 2007, 11 (S1), pp. 62 - 79	en_US
dc.identifier.issn	1365-1005	en_US
dc.identifier.uri	http://hdl.handle.net/10453/9932
dc.description.abstract	n the 1990s a large body of literature--sometimes referred to as the financial accelerator hypothesis, broad credit view, or balance sheet channel--focused on the role of financial factors in business fluctuations and in the transmission of monetary shocks [Bernanke and Gertler (1989, 1990, 1995), Bernanke et al. (1996, 1999), Greenwald and Stiglitz (1988, 1990, 1993), Stiglitz and Greenwald (2003)]. Insightful new additions to the literature, albeit along different lines, have been provided by Kiyotaki and Moore (1997, 2002) and Cooley and Quadrini (2001). In these models, in principle, agents are heterogeneous, and sometimes it is also recognized that heterogeneity is a necessary ingredient of important business cycle features (such as composition effects), but the nature and consequences of heterogeneity are not thoroughly explored. At a certain point of the analysis, the representative agent pops up and heterogeneity gets lost or is simply neglected. The temptation to keep the analysis simple by resorting to the representative agent is understandable. After all, the representative agent framework has been one of the most successful tools in economics [Hartley (1997); Stoker (1993)] and is still the cornerstone of standard macroeconomics. This modeling strategy, however, is justified if heterogeneity is temporary, that is, if the population of different households/firms converges over time to a stationary distribution in which agents are identical. This condition is generally not fulfilled empirically. In real economies heterogeneity is not bound to disappear and the evolution over time of the distribution of heterogeneous agents affects the dynamics of the macrovariables. If macroeconomic modeling relies on the representative agent, therefore, the analysis of business fluctuations and of the transmission mechanism of monetary policy will be too simple and sometimes even simplistic.	en_US
dc.publisher	Cambridge University Press	en_US
dc.relation.ispartof	Macroeconomic Dynamics	en_US
dc.subject.classification	Economics	en_US
dc.title	Financial Fragility, Industrial Dynamics and Business Fluctuations in an Agent Based Model	en_US
dc.type	Journal Article
utslib.citation.volume	S1	en_US
utslib.citation.volume	11	en_US
utslib.for	1401 Economic Theory	en_US
utslib.for	1402 Applied Economics	en_US
utslib.for	1403 Econometrics	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Economics Discipline
utslib.copyright.status	open_access
pubs.consider-herdc	false	en_US
pubs.issue	S1	en_US
pubs.volume	11	en_US

Abstract:

n the 1990s a large body of literature--sometimes referred to as the financial accelerator hypothesis, broad credit view, or balance sheet channel--focused on the role of financial factors in business fluctuations and in the transmission of monetary shocks [Bernanke and Gertler (1989, 1990, 1995), Bernanke et al. (1996, 1999), Greenwald and Stiglitz (1988, 1990, 1993), Stiglitz and Greenwald (2003)]. Insightful new additions to the literature, albeit along different lines, have been provided by Kiyotaki and Moore (1997, 2002) and Cooley and Quadrini (2001). In these models, in principle, agents are heterogeneous, and sometimes it is also recognized that heterogeneity is a necessary ingredient of important business cycle features (such as composition effects), but the nature and consequences of heterogeneity are not thoroughly explored. At a certain point of the analysis, the representative agent pops up and heterogeneity gets lost or is simply neglected. The temptation to keep the analysis simple by resorting to the representative agent is understandable. After all, the representative agent framework has been one of the most successful tools in economics [Hartley (1997); Stoker (1993)] and is still the cornerstone of standard macroeconomics. This modeling strategy, however, is justified if heterogeneity is temporary, that is, if the population of different households/firms converges over time to a stationary distribution in which agents are identical. This condition is generally not fulfilled empirically. In real economies heterogeneity is not bound to disappear and the evolution over time of the distribution of heterogeneous agents affects the dynamics of the macrovariables. If macroeconomic modeling relies on the representative agent, therefore, the analysis of business fluctuations and of the transmission mechanism of monetary policy will be too simple and sometimes even simplistic.

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http://hdl.handle.net/10453/9932