Agent‐Based Macroeconomics and Dynamic Stochastic General Equilibrium Models: Where Do We Go from Here?

26 Pages Posted: 20 Aug 2018

See all articles by Özge Dilaver

Özge Dilaver

University of Surrey

Robert Jump

University of the West of England (UWE) - Department of Accounting, Economics, and Finance

Paul Levine

School of Economics, University of Surrey

Date Written: September 2018

Abstract

Agent‐based computational economics (ACE) has been used for tackling major research questions in macroeconomics for at least two decades. This growing field positions itself as an alternative to dynamic stochastic general equilibrium (DSGE) models. In this paper, we provide a much needed review and synthesis of this literature and recent attempts to incorporate insights from ACE into DSGE models. We first review the arguments raised against DSGE in the macroeconomic ACE (macro ACE) literature, and then review existing macro ACE models, their explanatory power and empirical performance. We then turn to the literature on behavioural New Keynesian models that attempts to synthesize these two approaches to macroeconomic modelling by incorporating insights of ACE into DSGE modelling. Finally, we provide a thorough description of the internally rational New Keynesian model, and discuss how this promising line of research can progress.

Keywords: Agent‐based computational economics, Agent‐based macroeconomics, Dynamic stochastic general equilibrium models, New Keynesian behavioural models

Suggested Citation

Dilaver, Özge and Jump, Robert and Levine, Paul L., Agent‐Based Macroeconomics and Dynamic Stochastic General Equilibrium Models: Where Do We Go from Here? (September 2018). Journal of Economic Surveys, Vol. 32, Issue 4, pp. 1134-1159, 2018. Available at SSRN: https://ssrn.com/abstract=3233254 or http://dx.doi.org/10.1111/joes.12249

Özge Dilaver (Contact Author)

University of Surrey

Guildford
Guildford, GU2 5XH
United Kingdom

Robert Jump

University of the West of England (UWE) - Department of Accounting, Economics, and Finance ( email )

Blackberry Hill Bristol
Bristol, Avon BS16 1QY
United Kingdom

Paul L. Levine

School of Economics, University of Surrey ( email )

Guildford
Surrey GU2 7XH
United Kingdom
+44 1483 259 380 Ext. 2773 (Phone)
+44 1483 259 548 (Fax)

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