Agent-based Macroeconomic Model Research Articles

Economic and labour market impacts of migration in Austria: an agent-based modelling approach

This study examines the potential economic and labour market impacts of a hypothetical but plausible migration scenario of 250,000 new migrants inspired by Austria’s experience in 2015. Using the agent-based macroeconomic model developed by Poledna et al. (Eur Econ Rev, 151:104306, 2023. 10.1016/j.euroecorev.2022.104306, the study explores the detailed labour market outcomes for different groups in Austria’s population and the macroeconomic effects of the migration scenario. The analysis suggests that Austria’s economy and labour market have the potential to be resilient to the simulated migration influx. The results indicate a positive impact on GDP due to increased aggregate consumption and investment. The labour market experiences an increase in the unemployment rates of natives and previous migrants. In some industries, the increase in the unemployment rates is more significant, potentially indicating competition among different groups of migrants. This research provides insights for policymakers and stakeholders in Austria and other countries that may face the challenge of managing large-scale migration in the near future.

Energy efficiency policies in an agent-based macroeconomic model

Energy efficiency can help facing the climate crises. Yet the energy intensity has decreased more slowly than required to achieve climate goals. Based on this premise, we build an agent-based model to study the effects of different energy efficiency policies. Policies analysed range from indirect policies – taxes, incentives, and subsidies – to direct technological policies, where a public research laboratory invests in R&D to establish a new technological energy efficiency paradigm. Results reveal that, although most of the policies effectively reduce energy intensity, the research lab is the most efficient in promoting energy efficiency without negative impacts on macroeconomic and public finance conditions. However, the success of this policy requires a long-term commitment, highlighting the importance of complementing this strategy with more “ready to use” measures. The findings also indicate that most policies do not induce significant macroeconomic rebound effects. Concerns about macroeconomic rebound effects may likely be overstated.

Building a Macroeconomic Simulator with Multi-Layered Supplier–Customer Relationships

This study constructs an agent-based model suitable for analyzing the propagation of economic shocks based on a macroeconomic agent-based model structure that covers major economic entities. Instead of setting an upstream and downstream structure of firms in the inter-firm networks, our model includes a mechanism that connects each firm through supplier–customer relationships and incorporates interactions between firms mutually buying and selling intermediate input materials. It is confirmed through the proposed model’s simulation analysis that, although a firm’s sales volume temporarily falls due to an economic shock of the type that causes a sharp decline in households’ final demand, the increase in assets held by households as they refrain from spending rather expands their capacity for consumption. As a result, after the economic shock ceases to exist, the firm’s sales volume tends to be even greater than that of the preceding periods of the shock. Furthermore, we found that when the sales volume of products in a final consumer goods sector falls during the shock, the falls in sales in the non-final consumer goods sectors are suppressed due to replacement demand, and the increase in sales volume for the non-final consumer goods sectors is moderated after the shock ceases to exist.

Income distribution, productivity growth, and workers’ bargaining power in an agent-based macroeconomic model

Income distribution, productivity growth, and workers’ bargaining power in an agent-based macroeconomic model

Approaches to Accounting for the Financial Sector in Agent-Based Modeling

The article discusses approaches to introducing the financial sector into agent-based models, as well as various options for modeling the behavior of agents (firms and households) directly interacting with the financial system. Agent-based models can explain how some important macroeconomic phenomena can be generated by evolving networks of interactions between boundedly rational agents in economies, where the underlying rules of interaction can evolve endogenously over time. The importance of accounting for financial activity in macroeconomic models for reproducing business cycles and predicting financial crises is emphasized. Consideration of financial blocks in macroeconomic agent-based models includes an analysis of approaches to modeling the choice between household savings and consumption, making decisions about the amount of investment by private sector firms, as well as the rules for setting interest rates and regulatory limits by banks. Possibilities for improving approaches in terms of taking into account interest rates when modeling household savings are proposed, as well as long-term planning based on the calculation of discounted cash flows with an assessment of the impact of changes in output on market prices when forming firms’ investment plans.

A basic macroeconomic agent-based model for analyzing monetary regime shifts.

In macroeconomics, an emerging discussion of alternative monetary systems addresses the dimensions of systemic risk in advanced financial systems. Monetary regime changes with the aim of achieving a more sustainable financial system have already been discussed in several European parliaments and were the subject of a referendum in Switzerland. However, their effectiveness and efficacy concerning macro-financial stability are not well-known. This paper defines the economic requirements for modeling the current monetary system and introduces the corresponding macroeconomic agent-based model (MABM) in a continuous-time stochastic agent-based simulation environment with a provenance model. This MABM aims to present a starting point for exploring and analyzing monetary reforms. In this context, the monetary system affects the lending potential of banks and might impact the dynamics of financial crises. MABMs are predestined to replicate emergent financial crisis dynamics, analyze institutional changes within a financial system, and thus measure macro-financial stability. The used simulation environment makes the model more accessible and facilitates exploring the impact of different hypotheses and mechanisms in a less complex way. Moreover, the model replicates a wide range of stylized economic facts, which validates it as an analysis tool to implement and compare monetary regime shifts.

Automation, Job Polarisation, and Structural Change

The increasing automation of tasks traditionally performed by labour is reshaping the relationship between skills and tasks of workers, unevenly affecting labour demand for low, middle, and high-skill occupations. To investigate the economy-wide response to automation, we designed a multisector Agent-Based Macroeconomic model accounting for workers’ heterogeneity in skills and tasks. The model features endogenous skill-biased technical change, and heterogeneous consumption preferences for goods and personal services across workers of different skill types. Following available empirical evidence, we model automation as a manufacturing-specific, productivity-enhancing, and skill-biased technological process. We show how automation can trigger a structural change process from manufactory to personal services, which eventually increases the share of high and low-skilled occupations, while reducing the share of middle-skilled ones. Following the literature, we label this dynamics as job polarisation throughout the paper. Finally, we study how labour market policies can feedback in the model dynamics. In our framework, a minimum wage policy (i) slows down the structural change process, (ii) boosts aggregate productivity, and (iii) accelerates the automation process, strengthening productivity growth within the manufacturing sector.

An Agent-Based Macroeconomic Model with Endogenous Intertemporal Decision Rules

An Agent-Based Macroeconomic Model with Endogenous Intertemporal Decision Rules

Unconventional monetary policies in an agent-based model with mark-to-market standards.

We employ an agent-based model to shed light on the macroeconomic effects of accounting principles, unconventional monetary policies, and of their possible interactions. If mark-to-market accounting standards may entail positive feedbacks which amplify economic or financial shocks, unconventional policies may introduce negative feedbacks that might dampen instabilities in financial and real markets. For these reasons, we jointly study these two sets of policies by employing a modified version of the Schumpeter meeting Keynes (K+S) macroeconomic agent-based model. Our results confirm that, due to its pro-cyclical nature, the mark-to-market accounting standard amplifies credit cycles, generating more instability with respect to a simulated economy wherein the historical accounting principle is employed. In contrast, unconventional monetary policy is counter-cyclical and it improves macroeconomic indicators. Finally, we study a scenario wherein mark-to-market accounting and unconventional monetary policy interact. We find that unconventional monetary policy can counterbalance the negative effects brought about by the application of mark-to-market accounting. Our results suggest that unconventional monetary policy instruments should not be considered as temporary interventions to be employed only during crisis periods. They should be part of the toolbox of central banks also in normal times.

Labor and environment in global value chains: an evolutionary policy study with a three-sector and two-region agent-based macroeconomic model

The world economy crucially depends on multi-layered value chains with high degrees of sector-related specialization. Its final products are of international character and serve the needs and wants of the global citizen. However, many production processes are causing severe damage to the environment and moreover create health hazard for workers and local populations. This research article focuses on the increasing global unequal economic- and ecological exchange, fundamentally embedded in international trade. Resource extraction and labor conditions in the Global South as well as the implications for climate change originating from industry emissions in the North are investigated with an agent-based model. The model serves as a testbed for simulation experiments with evolutionary political economic policies. An international institution is introduced sanctioning the polluting extractivist sector in the Global South as well as the emitting industrial capital good producers in the North with the aim of subsidizing innovation reducing environmental and social impacts. Both regions are modelled as macroeconomic complex adaptive systems where international trade is restricted to a three-sector value chain, originating from mining resources in the South that are traded to capital good producers in the North crafting machinery which is eventually traded to consumer good firms, both in the North and South. The main outcome of the study is that sanctions alone are not effective in countering unequal exchange. They only make a difference in combination with subsidies for innovation activities, which are protecting labor and reducing local pollution in mines as well as reducing carbon-emissions in capital good production.

The sustainability transition and the digital transformation: two challenges for agent-based macroeconomic models

The sustainability transition and the digital transformation: two challenges for agent-based macroeconomic models

Towards a Validation Methodology for Macroeconomic Agent-Based Models

Agent-based models provide a promising new tool in macroeconomic research. Questions have been raised, however, regarding the validity of such models. A methodology of macroeconomic agent-based model (MABM) validation, that provides a deeper understanding of validation practices, is required. This paper takes steps towards such a methodology by connecting three elements. First, is a foundation of model validation in general. Second is a classification of models dependent on how the model is validated. An important distinction in this classification is the difference between mechanism and target validation. Third, is a framework that revolves around the relationship between the structure of models of complex systems with emergent properties and validation in practice. Important in this framework is to consider MABMs as modelling multiple non-trivial levels. Connecting these three elements provides us with a methodology of the validation of MABMs and allows us to come to the following conclusions regarding MABM validation. First, in MABMs, mechanisms at a lower level are distinct from, but provide input to higher levels of mechanisms. Since mechanisms at different levels are validated in different ways we can come to a specific characterization of MABMs within the model classification framework. Second, because the mechanisms of MABMs are validated in a direct way at the level of the agent, MABMs can be seen as a move towards a more realist approach to modelling compared to DSGE.

Monetary Policy Experiments in an Agent-Based Macroeconomic Model

We consider an interbank market and a central bank in an agent-based macroeconomic model with credit and capital to evaluate the effects of monetary policies—conventional and quantitative easing. We find quantitative easing outperforms Taylor’s rule-style policies in smoothing out the business cycle.

Managerial overconfidence in initial public offering decisions and its impact on macrodynamics and financial stability: Analysis using an agent-based model

In this study we build a macroeconomic agent-based model that is calibrated for the specific case of Poland to explore whether the overconfidence of top corporate managers in the context of their initial public offering (IPO) decisions is detrimental for the firms being managed in this way, the financial market dynamics, and the selected macroeconomic indicators. We found a contradiction between the micro and macro impacts of overconfidence. Overconfident firms showed better performance in terms of output than other firms but were also more exposed to stock market volatility, thereby making them more likely to default. The higher default rates of overoptimistic firms negatively impacted the banking sector and increased financial instability. Finally, we ran policy shocks and showed that increased financial instability can be offset by strengthening the regulation of the banking sector.

From CATS to CAOS: Fiscal Multipliers and Agents’ Expectations in a Macroeconomic Agent-Based Model

This paper uses a macroeconomic agent-based model building on Delli Gatti et al. (2011) to investigate the influence of agents’ expectations and consumption choices on government expenditure multipliers. Following a thorough investigation of the size of the multiplier in the pre-existing baseline model, a modification is introduced, allowing agents to engage in inter-temporal optimization of consumption subject to a budget constraint which is based on estimates of future income. Compared to the baseline, the fiscal multiplier is strongly affected by this alternative consumption behavior, becoming significantly smaller. In a further step, agents’ beliefs about the effects of government expenditure shocks are explicitly introduced. In the case of exogenously imposed beliefs coupled either with adaptation of individual beliefs or switching behavior between different types of beliefs, it is shown that both optimistic and pessimistic expectations can be temporarily self-fulfilling and either increase or decrease the value of the multiplier. Both forms of belief dynamics also allow for the incorporation of announcement effects of fiscal policy. In a final experiment, agents are allowed to engage in least-squares learning in order to gain an estimate of the effect of government expenditure shocks on future income. It is shown that under least squares learning, beliefs are ‘rational’ insofar as they lead to broadly correct predictions on average. The paper hence contributes to addressing aspects of the Lucas critique as applied to macro-ABMs, since agents react systematically (and reasonably) to announcements of changes in fiscal policy.

The economics of transition pathways: A proposed taxonomy and a policy experiment

Pathways of transition differ across countries, industrial sectors, firms and technologies, but little is known about the reasons for these differences and macroeconomic consequences. I show theoretically how differences in transition patterns and macroeconomic side effects can be explained by the characteristics of competing technologies. Competing technologies are characterized by their relative superiority in an exogenous socio-technical landscape, their relative maturity and cross-technology interactions in the process of specialization. These characteristics are linked to the multi-layer perspective of transition theory and build the conceptual basis of technology in the macroeconomic agent-based model Eurace@unibi-eco. It is shown that the characteristics can be an explanation for heterogeneous transition pathways. Policy may alter the exogenous landscape conditions that surround technological competition. It is shown how different market-based instruments can be used to accelerate and stabilize a transition process. Taxes and subsidies perform differently conditional on the characteristics of competing technologies.

Winter is possibly not coming: Mitigating financial instability in an agent-based model with interbank market

We develop a macroeconomic agent-based model to study how financial instability can emerge from the co-evolution of interbank and credit markets and the policy responses to mitigate its impact on the real economy. The model is populated by heterogenous firms, consumers, and banks that locally interact in different markets. In particular, banks provide credit to firms according to a Basel II or III macro-prudential frameworks and manage their liquidity in the interbank market. The Central Bank performs monetary policy according to different types of Taylor rules. We find that the model endogenously generates market freezes in the interbank market, which interact with the financial accelerator, possibly leading to firm bankruptcies, banking crises and the emergence of deep downturns. This requires the timely intervention of the Central Bank as a liquidity lender of last resort. Moreover, we find that the joint adoption of a three mandate Taylor rule tackling credit growth and the Basel III macro-prudential framework is the best policy mix to stabilize financial and real economic dynamics. However, as the Liquidity Coverage Ratio spurs financial instability by increasing the pro-cyclicality of banks’ liquid reserves, a new counter-cyclical liquidity buffer should be added to Basel III to improve its performance further. Finally, we find that the Central Bank can also dampen financial instability by employing a new unconventional monetary-policy tool involving active management of the interest-rate corridor in the interbank market.

When complexity meets finance: A contribution to the study of the macroeconomic effects of complex financial systems

In the last decade, complexity economics has emerged as a powerful approach to the understanding of the most relevant factors influencing economic development. The concept of economic complexity has been applied to the study of different economic issues such as economic growth, technological change and inequality. This work represents a first step towards the application of this concept to the study of the financial side of the economy, and particularly of the macroeconomic effects of rising financial complexity. In this paper, we present an agent-based macroeconomic model including an increasingly complex financial sector, characterized by the presence of Collateralized Debt Obligations with different seniorities next to more standard assets, like bonds and commercial papers. Simulations results suggest that financial complexity exerts major economic effects: while financial engineering makes securitized loans very attractive and opaque assets, the disperse interaction among different agents and financial institutions generated by these complex financial instruments shapes the behavior of the economies and allows for the diffusion of financial distress.

Expectativas semi-adaptativas en los modelos macroeconómicos multi-agentes: Una aplicación al análisis de la fragilidad financiera empresarial

Este artículo propone una nueva clase de expectativas para los modelos macroeconómicos multi-agentes. Se modifican las expectativas adaptativas, las cuales constituyen la norma en la modelación macroeconómica multi-agentes, para convertirlas en expectativas semi-adaptativas. Este nuevo mecanismo de expectativas se caracterizada por una volatilidad en relación con la influencia de los sentimientos de optimismo/pesimismo en la cognición de los agentes. Entonces, las expectativas semi-adaptativas son integradas en un modelo macroeconómico multi-agentes para ilustrar su impacto en la fragilidad financiera de las empresas. Entre los resultados obtenidos, se evidencia que las empresas pueden limitar la magnitud de su fragilidad financiera si formulan sus expectativas de ingresos con un grado máximo de volatilidad alrededor de una expectativa inicial que sirve de casi-referencia de largo plazo.

Job duration and inequality

AbstractAs suggested by recent empirical evidence, one of the causes behind the widespread rise of inequality experienced by OECD countries in the last few decades may have been the increased flexibility of labor markets. The authors explore this hypothesis through the analysis of a stock-flow consistent agent-based macroeconomic model able to reproduce with good statistical precision several empirical regularities. They employ three different sensitivity analysis techniques, which indicate that increasing job contract duration (i.e. decreasing flexibility) has the effect of reducing income and wealth inequality. However, the authors also find that this effect is diminished by tight monetary policy and low credit supply. The last result suggests that the final outcome of structural reforms aimed at changing labor flexibility can depend on the macroeconomic environment in which these are implemented.