Towards an Analytical Solution for Agent Based Models: An Application to a Credit Network Economy

66 Pages Posted: 23 Mar 2012

See all articles by Corrado Di Guilmi

Corrado Di Guilmi

University of Technology Sydney (UTS) - UTS Business School

Mauro Gallegati

Università Politecnica delle Marche - Faculty of Economics

Simone Landini

IRES Piemonte, Socio-Economic Research Institute of Piedmont

Joseph E. Stiglitz

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER)

Date Written: October 12, 2011

Abstract

In this paper we present a model with heterogeneous and interacting firms and banks, which is solved analytically. Methodologically, the economy is modelled as a network, a theoretical structure which is particularly suitable to represent the interactions among different agents. In this credit network firms interact directly with banks and, indirectly, among themselves. The main novelty is the use of the master equation to perform the aggregation over a population of heterogeneous firms and to describe the endogenous evolution of the network. The asymptotic solution of the master equation provides a system of coupled equations, governing the dynamics of growth and fluctuations of the aggregate output and the network degree.

Keywords: heterogeneity, financial fragility, master equation, interaction, dynamic aggregation

JEL Classification: E1, E6

Suggested Citation

Di Guilmi, Corrado and Gallegati, Mauro and Landini, Simone and Stiglitz, Joseph E., Towards an Analytical Solution for Agent Based Models: An Application to a Credit Network Economy (October 12, 2011). Available at SSRN: https://ssrn.com/abstract=1943280 or http://dx.doi.org/10.2139/ssrn.1943280

Corrado Di Guilmi (Contact Author)

University of Technology Sydney (UTS) - UTS Business School ( email )

Sydney
Australia

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)

Joseph E. Stiglitz

Columbia Business School - Finance and Economics ( email )

3022 Broadway
814 Uris Hall
New York, NY 10027
United States
(212) 854-0671 (Phone)
(212) 662-8474 (Fax)

HOME PAGE: http://www.josephstiglitz.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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