Modeling Maximum Entropy and Mean-Field Interaction in Macroeconomics

19 Pages Posted: 18 Dec 2010

See all articles by Corrado Di Guilmi

Corrado Di Guilmi

Universita' Politecnica delle Marche, Ancona - Department of Economics

Mauro Gallegati

Università Politecnica delle Marche - Faculty of Economics

Simone Landini

IRES Piemonte, Socio-Economic Research Institute of Piedmont

Date Written: 2008

Abstract

The representation of the economic system, from a complexity perspective, focuses on interactions among heterogeneous agents in conditions of uncertainty. Heterogeneity entails asymmetric reactions to shocks and, through interaction mechanisms and feedback loops at micro, macro and meso level, these diverse reactions influence behaviours of other agents. Such a system cannot be modelled with mainstream economics' tools. In this work we propose a stochastic dynamic model with heterogeneous firms. Their responses to stochastic shocks, in order to maximize profit, modifies their financial ratios, determining in this way the evolution of the system. The model is analytically solved by means of maximum entropy maximization and master equation's solution techniques (Aoki and Yoshikawa, 2006).

Keywords: Business cycles, heterogeneity, financial fragility, stochastic aggregation

JEL Classification: E6, E1

Suggested Citation

Di Guilmi, Corrado and Gallegati, Mauro and Landini, Simone, Modeling Maximum Entropy and Mean-Field Interaction in Macroeconomics (2008). Economics Discussion Paper No. 2008-36. Available at SSRN: https://ssrn.com/abstract=1726692 or http://dx.doi.org/10.2139/ssrn.1726692

Corrado Di Guilmi (Contact Author)

Universita' Politecnica delle Marche, Ancona - Department of Economics ( email )

Piazzale Martelli, 8
60121 Ancona
Italy
+39 071 2207110 (Phone)
+39 071 2207102 (Fax)

Mauro Gallegati

Università Politecnica delle Marche - Faculty of Economics ( email )

Piazzale Martelli, 8
60121 Ancona
Italy
++390712207188 (Phone)
++390712207102 (Fax)

Simone Landini

IRES Piemonte, Socio-Economic Research Institute of Piedmont ( email )

Via Nizza 18
Turin, Turin 10125
Italy
+390116666404 (Phone)
+390116666469 (Fax)

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