Good speciation and endogenous business cycles in a constraint satisfaction macroeconomic model

Journal of Statistical Mechanics: Theory and Experiment (2021) 063403 https://doi.org/10.1088/1742-5468/ac014a

14 Pages Posted: 17 Jul 2020 Last revised: 11 Jun 2021

See all articles by Dhruv Sharma

Dhruv Sharma

École Normale Supérieure - PSL Research University - Laboratoire de Physique de l’École Normale Supérieure

Jean-Philippe Bouchaud

Capital Fund Management

Marco Tarzia

Université Paris VI Pierre et Marie Curie

Francesco Zamponi

École Normale Supérieure (ENS)

Date Written: May 24, 2020

Abstract

We introduce a prototype agent-based model of the macroeconomy, with budgetary constraints at its core. The model is related to a class of constraint satisfaction problems (CSPs), which has been thoroughly investigated in computer science. The CSP paradigm allows us to propose an alternative price-setting mechanism: given agents' preferences and budgets, what set of prices satisfies the maximum number of agents? Such an approach permits the coupling of production and output within the economy to the allowed level of debt in a simplified framework. Within our model, we identify three different regimes upon varying the amount of debt that each agent can accumulate before defaulting. In presence of a very loose constraint on debt, endogenous crises leading to waves of synchronized bankruptcies are present.In the opposite regime of very tight debt constraining, the bankruptcy rate is extremely high and the economy remains structure-less. In an intermediate regime, the economy is stable with very low bankruptcy rate and no aggregate-level crises. This third regime displays a rich phenomenology: the system spontaneously and dynamically self-organizes in a set of cheap and expensive goods (i.e. some kind of ``speciation''), with switches triggered by random fluctuations and feedback loops. Our analysis confirms the central role that debt levels play in the stability of the economy. More generally, our model shows that constraints at the individual scale can generate highly complex patterns at the aggregate level.

Keywords: Agent-Based Modelling, Macroeconomics, Constraint-Satisfaction Problems, Perception, Phase Transitions

JEL Classification: E17, E32, E52

Suggested Citation

Sharma, Dhruv and Bouchaud, Jean-Philippe and Tarzia, Marco and Zamponi, Francesco, Good speciation and endogenous business cycles in a constraint satisfaction macroeconomic model (May 24, 2020). Journal of Statistical Mechanics: Theory and Experiment (2021) 063403 https://doi.org/10.1088/1742-5468/ac014a, Available at SSRN: https://ssrn.com/abstract=3632335 or http://dx.doi.org/10.2139/ssrn.3632335

Dhruv Sharma (Contact Author)

École Normale Supérieure - PSL Research University - Laboratoire de Physique de l’École Normale Supérieure ( email )

24 rue Lhomond
Paris, 75005
France

Jean-Philippe Bouchaud

Capital Fund Management ( email )

23 rue de l'Université
Paris, 75007
France
+33 1 49 49 59 20 (Phone)

Marco Tarzia

Université Paris VI Pierre et Marie Curie ( email )

175 Rue du Chevaleret
Paris, 75013
France

Francesco Zamponi

École Normale Supérieure (ENS) ( email )

45 rue d’Ulm
Paris Cedex 05, F-75230
France

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