No Man is an Island: The Impact of Heterogeneity and Local Interactions on Macroeconomic Dynamics

33 Pages Posted: 1 Jun 2016

See all articles by Mattia Guerini

Mattia Guerini

Scuola Superiore Sant'Anna di Pisa; OFCE - SciencesPo

Mauro Napoletano

Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG); Observatoire Français des Conjonctures Economiques (OFCE); SKEMA Business School; Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM)

Andrea Roventini

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM); Observatoire Français des Conjonctures Economiques (OFCE)

Date Written: May 31, 2016

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.

Keywords: Agent-Based Model, Local Interactions, Heterogeneous Agents, DSGE Model

JEL Classification: E03, E32, E37

Suggested Citation

Guerini, Mattia and Napoletano, Mauro and Roventini, Andrea, No Man is an Island: The Impact of Heterogeneity and Local Interactions on Macroeconomic Dynamics (May 31, 2016). Available at SSRN: https://ssrn.com/abstract=2787164 or http://dx.doi.org/10.2139/ssrn.2787164

Mattia Guerini (Contact Author)

Scuola Superiore Sant'Anna di Pisa ( email )

Piazza Martiri della Liberta, n. 33
Pisa, 56127
Italy

OFCE - SciencesPo ( email )

69 Quai d'Orsay
Paris 75004
France

Mauro Napoletano

Université de Nice Sophia Antipolis - Groupe de Recherche en Droit, Economie et Gestion (GREDEG) ( email )

250, rue Albert Einstein
Valbonne, 06560
France

Observatoire Français des Conjonctures Economiques (OFCE) ( email )

60, rue Dostoïevski
Sophia-Antipolis Cedex, 06902
France

HOME PAGE: http://www.ofce.sciences-po.fr

SKEMA Business School ( email )

60 rue Dostoïevski
Sophia Antipolis, 06902
France

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri della Liberta, 33
Pisa, I-56127
Italy

Andrea Roventini

Scuola Superiore Sant'Anna di Pisa - Laboratory of Economics and Management (LEM) ( email )

Piazza Martiri della Liberta', 33-I-56127
Pisa
Italy

Observatoire Français des Conjonctures Economiques (OFCE)

69 Quai d'Orsay
Paris 75004
France

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