Rethinking Macroeconomics with Endogenous Market Structure

An innovative new agent-based macroeconomic framework demonstrating the macroeconomic implications of industrial structure and strategic interactions amongst oligopolistic firms within an economy.

Marco Mazzoli (Author), Matteo Morini (Author), Pietro Terna (Author)

9781108482608, Cambridge University Press

Hardback, published 19 December 2019

248 pages
23.4 x 15.7 x 1.3 cm, 0.47 kg

'One of the relevant advantages of the agent-based models over the general economic equilibrium approach is that they allow us to model the behavior of heterogeneous agents. In this book the authors introduce an endogenous market structure, with a supply-side founded on the strategic behavior of a set of incumbent oligopolistic firms, engaged in a struggle to fence off potential new entrants. The demand side is modeled both as a clearing market and – here comes the innovation – as a system of interacting, price-fixing agents, carrying out a trial and error process. This approach is a successful attempt to breach the wall between the agent-based and mainstream macro modeling.' Massimo Egidi, Professor emeritus, Luiss University of Rome

The birth and death of firms is one of the main features of the business cycle. Yet mainstream DGSE macroeconomic models mostly ignore this phenomenon, thereby excluding any potential impact of economic policy on the probability of the birth and death of firms. Those DGSE models that do allow for this phenomenon do so at the cost of drastic simplifications, which effectively rule out causal links between the strategic interaction of industrial firms and the macroeconomy. This innovative new book develops a bottom-up, agent-based framework that shows how strategic interactions at the level of oligopolistic firms, and even at the level of individuals, affect entire industrial sectors and the equilibrium of the macroeconomy. It will appeal to academic researchers and graduate students working in computational economics, agent-based modelling and econophysics, as well as mainstream economists interested in learning more about alternatives to DGSE models in macroeconomics.

Introduction
Part I. Theory: 1. Industrial structure and the macroeconomy: a few premises for a macromodel
2. Industrial structure and the macroeconomy: the macroeconomic model and its algebraic framework
Part II. Model: 3. A computable market model: the structure of the agent-based simulation
4. The results of the simulation agent-based model
5. The model facing empirical data
Conclusions
Appendices: Appendix A. The structure of an atomistic simplified Hayekian market
Appendix B. The acrostics of the simulation model and its parameters
References
Biographical notes.

Subject Areas: Monetary economics [KCBM], Macroeconomics [KCB]