Charging the Macroeconomy with an Energy Sector: An Agent-based Model

47 Pages Posted: 8 Mar 2022

See all articles by Emanuele Ciola

Emanuele Ciola

Fondazione Eni Enrico Mattei (FEEM), Milan; University of Brescia - Department of Economics and Management

Enrico Maria Turco

Catholic University of Milan; University of Amsterdam

Andrea Gurgone

Complexity Lab in Economics - CLE, Catholic University of Milan; University of Bamberg - Department of Economics

Davide Bazzana

University of Brescia - Department of Economics and Management; Fondazione Eni Enrico Mattei (FEEM)

Sergio Vergalli

University of Brescia - Department of Economics; Fondazione Eni Enrico Mattei (FEEM), Milan

Francesco Menoncin

University of Brescia

Date Written: March 7, 2022

Abstract

The global energy crisis that began in fall 2021 and the following spike in energy price constitute a major challenge for the world economy which risks undermining the post-COVID-19 recovery. In this paper, we develop and validate a new macroeconomic agent-based model with an endogenous energy sector to analyse the role of energy in the functioning of a complex adaptive system and assess the effects of energy shocks on the economic dynamics. The economic system is populated by heterogeneous agents, i.e., households, firms and banks, who take optimal decision rules and interact in decentralized markets characterized by limited information. After calibrating the model on US quarterly macroeconomic data, we investigate the economic and distributional effects of different types of energy shocks, that is an exogenous increase in the price of natural resources such as oil or gas and a decrease in the energy firms' productivity. We find that whereas the two energy shocks entail similar effects at the aggreagate level, the distribution of gains and losses across sectors is largely driven by the subsequent impact on the relative energy price, which varies depending on the type of shock. Our results suggest that, in order to design effective measures in response to energy crises, policymakers need to carefully take into account the nature of energy shocks and the resulting distributional effects.

Keywords: Energy Sector, Energy Shocks, Agent-Based Models, Macroeconomic Dynamics

JEL Classification: C63, O13, Q41, Q43

Suggested Citation

Ciola, Emanuele and Turco, Enrico Maria and Turco, Enrico Maria and Gurgone, Andrea and Gurgone, Andrea and Bazzana, Davide and Vergalli, Sergio and Menoncin, Francesco, Charging the Macroeconomy with an Energy Sector: An Agent-based Model (March 7, 2022). FEEM Working Paper No. 9.2022, Available at SSRN: https://ssrn.com/abstract=4051401 or http://dx.doi.org/10.2139/ssrn.4051401

Emanuele Ciola (Contact Author)

Fondazione Eni Enrico Mattei (FEEM), Milan ( email )

Corso Magenta 63
20123 Milan
Italy

University of Brescia - Department of Economics and Management ( email )

Contrada Santa Chiara 50
BRESCIA, BS 25122
Italy

Enrico Maria Turco

Catholic University of Milan ( email )

1 Largo A. Gemelli
Milano (Milan), MI Milano 20123
Italy

University of Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands

Andrea Gurgone

University of Bamberg - Department of Economics ( email )

Bamberg 96045
Germany

Complexity Lab in Economics - CLE, Catholic University of Milan ( email )

Largo Gemelli, 1
Via Necchi 9
Milan, MI 20123
Italy

Davide Bazzana

University of Brescia - Department of Economics and Management ( email )

Contrada Santa Chiara, 50
BRESCIA, BS 25122
Italy

Fondazione Eni Enrico Mattei (FEEM) ( email )

C.so Magenta 63
Milano, 20123
Italy

Sergio Vergalli

University of Brescia - Department of Economics ( email )

Via San Faustino 74B
Brescia, 25122
Italy

Fondazione Eni Enrico Mattei (FEEM), Milan ( email )

Corso Magenta 63
20123 Milan
Italy

Francesco Menoncin

University of Brescia ( email )

Piazza del Mercato, 15
25122 Brescia
Italy

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