Aggregation of Heterogeneous Interacting Agents: The Variant Representative Agent Framework

Abstract

In this paper we have presented a variant of the stochastic aggregation approach which basically consists in exploring the evolution over time of higher moments of the economic units’ distribution. In a sense therefore, we propose to focus on the behavior of a Variant Representative Agent. An application to a classical growth model shows that changes in aggregate output usually associated with Total Factor Productivity in the aggregative interpretation of the framework may be due to changes in the distribution of agents in terms of capital intensity. The application to a model by Gatti et al. (Interaction and market structure, Springer, 2000) shows the efficacy of the method in capturing the evolution over time of the distribution of firms in terms of financial solidity (equity ratio). The method seems general enough to cover a wide range of economic situations in which heterogeneity is relevant and persistent. It seems also simple enough to deserve the attention of the macroeconomist dissatisfied with the RA who wants to derive meaningful and microfounded macroeconomic results.