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Agent-Based Computational Models Peter Howitt Brown University Bank of Canada workshop November 17, 2016 Agent-based computational economics Computational models of many interacting, heterogeneous agents, each endowed with simple behavioral

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Agent-Based Computational Models

Peter Howitt Brown University

Bank of Canada workshop November 17, 2016

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Agent-based computational economics

Computational models of many interacting, heterogeneous agents, each endowed with simple behavioral rules permitting action in unknown complex environments, with no direct restrictions on aggregate outcomes.

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Agent-based computational economics

Computational models of many interacting, heterogeneous agents, each endowed with simple behavioral rules permitting action in unknown complex environments, with no direct restrictions on aggregate outcomes. Examples in economics: → Schelling’s segregation model (1969)

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Agent-based computational economics

Computational models of many interacting, heterogeneous agents, each endowed with simple behavioral rules permitting action in unknown complex environments, with no direct restrictions on aggregate outcomes. Examples in economics: → Schelling’s segregation model (1969) → Santa Fe Stock Market (1994)

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Agent-based computational economics

Computational models of many interacting, heterogeneous agents, each endowed with simple behavioral rules permitting action in unknown complex environments, with no direct restrictions on aggregate outcomes. Examples in economics: → Schelling’s segregation model (1969) → Santa Fe Stock Market (1994) → Geanakoplos et al. (AER 2012)

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Agent-based computational economics

Computational models of many interacting, heterogeneous agents, each endowed with simple behavioral rules permitting action in unknown complex environments, with no direct restrictions on aggregate outcomes. Examples in economics: → Schelling’s segregation model (1969) → Santa Fe Stock Market (1994) → Geanakoplos et al. (AER 2012) → The EURACE project

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Agent-based computational economics

Computational models of many interacting, heterogeneous agents, each endowed with simple behavioral rules permitting action in unknown complex environments, with no direct restrictions on aggregate outcomes. Examples in economics: → Schelling’s segregation model (1969) → Santa Fe Stock Market (1994) → Geanakoplos et al. (AER 2012) → The EURACE project → Dosi et al (Schumpeter meeting Keynes, 2010)

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Agent-based computational economics

Computational models of many interacting, heterogeneous agents, each endowed with simple behavioral rules permitting action in unknown complex environments, with no direct restrictions on aggregate outcomes. Examples in economics: → Schelling’s segregation model (1969) → Santa Fe Stock Market (1994) → Geanakoplos et al. (AER 2012) → The EURACE project → Dosi et al (Schumpeter meeting Keynes, 2010) → Ashraf, Gershman and Howitt (2016)

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Agent-based computational economics

Computational models of many interacting, heterogeneous agents, each endowed with simple behavioral rules permitting action in unknown complex environments, with no direct restrictions on aggregate outcomes. Examples in economics: → Schelling’s segregation model (1969) → Santa Fe Stock Market (1994) → Geanakoplos et al. (AER 2012) → The EURACE project → Dosi et al (Schumpeter meeting Keynes, 2010) → Ashraf, Gershman and Howitt (2016) → Tesfatsion-Judd Handbook of Computational Economics (2006)

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Why in macroeconomics?

Autonomy and spontaneous order

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Where is the comparative advantage of ABM?

1. Costs of inflation

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Where is the comparative advantage of ABM?

1. Costs of inflation
2. Systemic breakdown

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Where is the comparative advantage of ABM?

1. Costs of inflation
2. Systemic breakdown
3. Big data

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Where is the comparative advantage of ABM?

1. Costs of inflation
2. Systemic breakdown
3. Big data
4. Heterogeneity

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Two methodological issues with ABMs

1. Can we retain discipline without imposing rationality and

equilibrium?

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Two methodological issues with ABMs

1. Can we retain discipline without imposing rationality and

equilibrium?

2. What about the Lucas critique?

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Conclusions

1. Central banks are well equipped for creating ABMs

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Conclusions

1. Central banks are well equipped for creating ABMs
2. A central bank needs more than one model