Abstract

In this article, we consider a variety of different mechanisms through which crises such as COVID-19 can propagate from the micro-economic behaviour of individual agents through to an economy’s aggregate dynamics and subsequently spill over into the global economy. Our central theme is one of changes in the behaviour of heterogeneous agents, agents who differ in terms of some measure of size, wealth, connectivity, or behaviour, in different parts of an economy. These are illustrated through a variety of case studies, from individuals and households with budgetary constraints, to financial markets, to companies composed of thousands of small projects, to companies that implement single multi-billion dollar projects. In each case, we emphasise the role of data or theoretical models and place them in the context of measuring their inter-connectivity and emergent dynamics. Some of these are simple models that need to be ‘dressed’ in socio-economic data to be used for policy-making, and we give an example of how to do this with housing markets, while others are more similar to archaeological evidence; they provide hints about the bigger picture but have yet to be unified with other results. The result is only an outline of what is possible but it shows that we are drawing closer to an integrated set of concepts, principles, and models. In the final section, we emphasise the potential as well as the limitations and what the future of these methods hold for economics.

Highlights

  • We show that the effect of COVID-19 on Sydney house prices is the opposite to that of a bubble–crash dynamic; house prices increase significantly in the model and this has been observed in recent price movements across Sydney and other Australian capital cities, lending significant credence to the use of agent-based models to simulate out-of-sample dynamics during a crisis

  • We investigate the effect of COVID-19-related government policy interventions by exploring alternative financial realities compared to the one people experienced during the 2016–2019 period, which we refer to as the Baseline model [62]

  • While all economic crises are idiosyncratic in the details of their cause and effect, the interactions between heterogeneous agents are integral to understanding the life cycle of a crisis-instigated market failure

Read more

Summary

The Economics of Heterogeneity and Interconnections

Crises that disturb the economic status quo have a ripple effect that can reverberate through markets and economies around the world. Within the context of complexity economics, this article reviews several recent research directions at multiple different levels of analysis as well as some of the work that we have carried out in recent years This includes our work on applied network theory [20,51,52,53,54], bifurcations and systemic risks [55,56,57,58,59,60], agent-based modelling of economic markets [61,62,63,64], the theoretical limits of ‘rationality’ and strategic choice [20,65,66,67,68,69], and how information theory can be used to understand the dynamics of these systems [70,71,72,73,74,75,76,77]. We introduce the central themes of this work that are the basis of the sections in the main body of this article

The Household Level
Financial Markets and Systemic Risks
Trade Networks
Business Sector Analysis
The Structure of the Article
Periods of Financial Distress in an Agent Based Model
The Theoretical Framework
Simulation Results
Remarks
Trading Houses
Simple versus More Complex Agent-Based Models
Fluctuations in Equity Markets at Crises Points
Analysis Using Transfer Entropy for the DJIA Market Shocks
National and International Trade in Value Added
Value-Added Trade Networks
Features of Australia’s Internal Trade Patterns
Predicting the Impacts of Exogenous Shocks
Features of Global Trade Patterns
Mega-Projects and the Economy
COVID-19 at the Project Level
Conclusions
Full Text
Paper version not known

Talk to us

Join us for a 30 min session where you can share your feedback and ask us any queries you have

Schedule a call