Macroeconomic Policy in DSGE and Agent- Based Models Redux: New Developments and Challenges Ahead. Fagiolo, G. & Roventini, A. Journal of Artificial Societies and Social Simulation, 2017. doi abstract bibtex The Great Recession seems to be a natural experiment for economic analysis, in that it has shown the inadequacy of the predominant theoretical framework — the New Neoclassical Synthesis (NNS) — grounded on the DSGE model. In this paper, we present a critical discussion of the theoretical, empirical and political-economy pitfalls of the DSGE-based approach to policy analysis. We suggest that a more fruitful research av-enue should escape the strong theoretical requirements of NNS models (e.g., equilibrium, rationality, repre-sentative agent, etc.) and consider the economy as a complex evolving system, i.e. as an ecology populated by heterogeneous agents, whose far-from-equilibrium interactions continuously change the structure of the system. This is indeed the methodological core of agent-based computational economics (ACE), which is pre-sented in this paper. We also discuss how ACE has been applied to policy analysis issues, and we provide a survey of macroeconomic policy applications (fiscal and monetary policy, bank regulation, labor market struc-tural reforms and climate change interventions). Finally, we conclude by discussing the methodological status of ACE, as well as the problems it raises.
@article{fagiolo2017macroeconomic,
abstract = {The Great Recession seems to be a natural experiment for economic analysis, in that it has shown the inadequacy of the predominant theoretical framework — the New Neoclassical Synthesis (NNS) — grounded on the DSGE model. In this paper, we present a critical discussion of the theoretical, empirical and political-economy pitfalls of the DSGE-based approach to policy analysis. We suggest that a more fruitful research av-enue should escape the strong theoretical requirements of NNS models (e.g., equilibrium, rationality, repre-sentative agent, etc.) and consider the economy as a complex evolving system, i.e. as an ecology populated by heterogeneous agents, whose far-from-equilibrium interactions continuously change the structure of the system. This is indeed the methodological core of agent-based computational economics (ACE), which is pre-sented in this paper. We also discuss how ACE has been applied to policy analysis issues, and we provide a survey of macroeconomic policy applications (fiscal and monetary policy, bank regulation, labor market struc-tural reforms and climate change interventions). Finally, we conclude by discussing the methodological status of ACE, as well as the problems it raises.},
author = {Fagiolo, Giorgio and Roventini, Andrea},
doi = {10.18564/jasss.3280},
file = {::},
journal = {Journal of Artificial Societies and Social Simulation},
keywords = {DOLFINS{\_}T1.4},
mendeley-tags = {DOLFINS{\_}T1.4},
title = {{Macroeconomic Policy in DSGE and Agent- Based Models Redux: New Developments and Challenges Ahead}},
year = {2017}
}
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