The Distribution of Outcomes for a Networked Economy
52 Pages Posted: 16 May 2018 Last revised: 14 Jun 2019
Date Written: May 27, 2019
We develop a theoretical framework and an accompanying set of tools for mapping the topologies of networks in the economy to different probability distributions of interest. We apply these tools to analytically show how the topology of an agent interaction network enables non-fundamental fluctuations in aggregate macroeconomic sentiment, thereby providing microfoundations for animal spirits; as the network's topology changes, we can compute how the shape of the corresponding distribution of aggregate sentiment adjusts. We can moreover apply these tools to carry out closed-form analysis of complex economic systems and to construct error bounds about the paths of aggregated networked economies.
Keywords: network, economic system, probability distribution, configuration, uncertainty modeling, macroeconomic sentiment, animal spirits, elections
JEL Classification: D85, C40, C60, E32, D72
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