Rethinking Macroeconomics with Endogenous Market Structure

Description

The birth and death of firms is one of the main features of the business cycle. Yet mainstream DGSE macroeconomic models mostly ignore this phenomenon, thereby excluding any potential impact of economic policy on the probability of the birth and death of firms. Those DGSE models that do allow for this phenomenon do so at the cost of drastic simplifications, which effectively rule out causal links between the strategic interaction of industrial firms and the macroeconomy. This innovative new book develops a bottom-up, agent-based framework that shows how strategic interactions at the level of oligopolistic firms, and even at the level of individuals, affect entire industrial sectors and the equilibrium of the macroeconomy. It will appeal to academic researchers and graduate students working in computational economics, agent-based modelling and econophysics, as well as mainstream economists interested in learning more about alternatives to DGSE models in macroeconomics.

Marco Mazzoli is Associate Professor of Economic Policy at Universita degli Studi di Genova. He has published various papers in international journals, as well as the monograph Credit, Investments and the Macroeconomy (Cambridge, 1998). Matteo Morini is currently a postdoctoral researcher at the Universitat Koblenz-Landau, Germany, and holds a research scientist position at Universita degli Studi di Torino, Italy; he also teaches in the Collegio Carlo Alberto postgraduate programme and sits on the board of directors (as vice-president) of the Swarm Development Group. He has co-authored and co-edited two books on complexity and agent-based modelling. Pietro Terna is a retired professor of Universita degli Studi di Torino, Italy, where he was a full Professor of Economics. His research work has been pioneering the use of Swarm to create social simulations with agent-based models. He has also prepared a new agent-based simulation tool in Python (Swarm-Like Agent Protocol in Python), SLAPP.

'If, against all the empirical evidence, you insist on believing that the processes of entry and exit of companies do not affect the structure of the market, do not read this book. Using an agent-based methodology, the authors provide a fully convincing interpretation of how the interaction between oligopolistic firms is at the origin of the fluctuations and structural dynamics of capitalism, controllable thanks to economic policy.' Mauro Gallegati, Marche Polytechnic University 'This book is a fascinating attempt to rethink one of the basic questions in macroeconomics by using agent-based modelling, rather than mathematical equations. It clearly demonstrates the potential of this approach with a clear explanation of the model and the theory lying behind it.' Nigel Gilbert, University of Surrey 'With this book Mazzoli, Morini and Terna have demonstrated their thought leadership in the field of agent-based macroeconomics. Their innovative framework for understanding dynamical causality, constraints, and interactions among market participants, industrial structures, and strategic partners offers us a computational tool for capturing, predicting, and planning for complexities of the modern economic world.' Mirsad Hadzikadic, Professor, UNC Charlotte 'One of the relevant advantages of the agent-based models over the general economic equilibrium approach is that they allow us to model the behavior of heterogeneous agents. In this book the authors introduce an endogenous market structure, with a supply-side founded on the strategic behavior of a set of incumbent oligopolistic firms, engaged in a struggle to fence off potential new entrants. The demand side is modeled both as a clearing market and - here comes the innovation - as a system of interacting, price-fixing agents, carrying out a trial and error process. This approach is a successful attempt to breach the wall between the agent-based and mainstream macro modeling.' Massimo Egidi, Professor emeritus, Luiss University of Rome