the [email protected] model - global systems dynamics and policy

IntroductionThe Model Eurace@Unibi

Some Dynamic Properties and Stylized FactsA Policy Experiment

Conclusions

The Eurace@Unibi Model:

An Agent-Based Macroeconomic Model for

Economic Policy Analysis

P. Harting1, H. Dawid1, S. van der Hoog1, S. Gemkow1, and M.Neugart2

1Department of Business Administration and Economics, Bielefeld University,

Germany

2Department of Law and Economics, Technical University of Darmstadt, Germany

P. Harting et al. New Thinking about Global Challenges, Berlin 1



Conclusions

1 Introduction

2 The Model Eurace@Unibi

3 Some Dynamic Properties and Stylized Facts

4 A Policy Experiment

5 Conclusions




Conclusions

Agent-based Approach to Economic Modeling

In ABM an economic system is modeled as a collection ofautonomous interacting agents operating in a computationalworld.

Agents are entities that encapsulate data as well as methods.

Rule-based decision making by agents.

Agents interact through explicitly given interaction protocols(market rules, information �ow channels, ..)

Dynamics on the meso- (market/industry) and on the macro-level is generated by aggregating over the actions/stocks of allagents in the model.




Conclusions

Why an Agent-based Approach?

Explicit consideration of heterogeneity of �rms, households,etc. with respect to various characteristics

Capturing behavior of �rms, HHs, etc that resemblesdocumented behavior in real markets

Capturing feedbacks between dynamics in di�erent regions,markets, time-scales ...

Capturing micro-macro AND macro-micro links




Conclusions

Why an Agent-based Approach for Policy Analysis?

Capturing main institutional aspects (frictions ...)

Short term vs. long term e�ects of policies

Analyzing issues in di�erent policy areas in a uni�ed model

Analyzing interaction between di�erent types of policymeasures




Conclusions

Areas of ACE-based policy analysis:

1. E�ects of speci�c policies in particular markets and industriesbased on models with rich (institutional) structure

Power Markets

Housing Markets

Interbank Networks

Agricultural Economics

PC, Biotech ('History-friendly models')...

Financial Markets (NASDAQ, XETRA,...)

(Electric) Car Markets

...




Conclusions

Areas of ACE-based policy analysis:

2. E�ects of (combinations of) policies in the framework of closed(macro)models capturing feedbacks, ...

'Pisa Model' (Dosi, Fagiolo,...): �scal, competition, patentpolicies

LAGOM Model (Jäger, Mandel,...): climate policy

'Ancona Model' (Gallegati, Delli Gati, ...): credit linkages,

MAS Macro (Axtell, George, ...): emergence of �rms,institutions

AS1 (Haber): monetary policy

EURACE Model: �scal, monetary, innovation, labor policies

...




Conclusions

Overview

The Model Eurace@Unibi

Closed macroeconomic Agent-Based Model based on theEU-funded project EURACE (2006-2009) and severaladditional model extensions.

The main focus of the model is on research questions relatedto:

labor markets (skill dynamics, (spatial) labor �ows).industry evolution (productivity change, technology di�usion).credit markets (credit rationing, total debt dynamics).




Conclusions

Main features of the Eurace@unibi model

Agents: Households, Firms, Banks, Government, (CentralBank).

Strong micro-foundation of agents' behavior:

Agents act rule-based, i.e. according to prede�ned rules giventheir current information/ data stock.Management Science Approach: basing the (�rms') decisionrules on well-documented heuristics and courses of action.The decision rules can have di�erent levels of complexity.

Asynchronous decision making of individuals.

Veri�cation: Balance Sheet Approach and Stock �owconsistency checks




Conclusions

Overview

Capital Goods

Producer

Consumption

Goods

Producers

Banks

Workers

Con-

sumers

Credit Market

Labor Market

Cap

ita

l G

ood

sM

ark

et

Con

su

mp

tion

Go

od

sM

ark

et




Conclusions

The Consumption Goods Market

The consumption goods market is represented by a centralizedmarket platform → Mall.

Each consumption goods producer operates an inventory atthe mall → replenished once a month.

Each household visits the mall once a week in order to makethe weekly shopping.




Conclusions

Production Planing

The production planning follows a standard inventory policywith �xed delivery periods and stochastic demand:

The �rm determines a replenishment level Yi,t :

Yi,t = D̂i,t︸︷︷︸Expected demand

+ qχ ·√σ2D̂i,t︸︷︷︸

Bu�er

:

The di�erence of the replenishment level Yi,t and the currentstock SLi,t is the planned delivery volume and thus the desired

output Q̃ : Q̃ = max[0,Yi,t − SLi,t ]




Conclusions

Pricing

Firms choose that price yielding the highest expected pro�tgiven the demand estimation and the available informationabout competitors.

Market research procedure for gathering information used forestimating a demand curve.

Endogenous mark-ups.




Conclusions

Input factor determination

Consumption goods are produced using (vintage structured)capital and labor → Leontief production function.

Complementarity between quality of investment goods andlevel of speci�c skills of workers

Productivity of a given technology level is only fully exploited ifworkers in the �rm have su�ciently high speci�c skills.

Di�erentiated skill structure: general, speci�c skills:

Speci�c skills attained during employment in �rms.Higher general skills improve speed of attaining speci�c skills.




Conclusions

Technological change and di�usion

Investment good producer o�ers a range of investment goodswith di�erent quality (vintages), which are supplied atdi�erentiated prices.

New vintages with improved quality are added to the productrange following stochastic innovation cycles.

Endogenous innovation probability depending on the revenuesof the investment goods �rm → clustering of innovationduring boom phases.




Conclusions

Labor Market, Financial Sphere, and Government

Labor Market: Matching algorithm based on posted wageo�ers and reservation wages.

Credit Market: Banks can grant credits according to stylizedBasel II criteria.

Financial Market: Agents can trade an index stock.

Government: Collects taxes and pays out unemploymentbene�ts.




Conclusions

Some Dynamic Properties and Stylized Facts

Figure: Left: GDP. Right: quarterly GDP growth.




Conclusions


Figure: Bandpass �ltered: Output/ Consumption (left), Output/Investments (right).




Conclusions


Figure: Left: Bandpass �ltered Output/ Mark-up. Right: Firm sizedistribution.




Conclusions


Figure: Dynamics of Individual Firm Output




Conclusions


Figure: Heat maps; vertical axis capital stock, color code: mark-up (left),productivity capital stock (right).




Conclusions

The Experiment

We are considering a stabilization policy:

Which e�ect does the stabilization policy have on the longterm economic growth?

What are the economic forces driving possible di�erencesbetween the stabilized and the baseline scenario?

Can we observe di�erent di�usion pattern and do they havelong term e�ects on the economic growth?




Conclusions

Output e�ect of stabilizing policy

0 50 100 150

1700

1800

1900

2000

2100

2200

2300

Months

Out

put

Figure: Output, (black not-smoothed, red smoothed)




Conclusions

E�ect on the technological change

0 50 100 150

1.5

1.6

1.7

1.8

1.9

Months

Pro

duct

ivity

0 50 100 1501.

82.

02.

22.

4

Months

Pro

duct

ivity

Figure: Left: Average productivity of capital stocks. Right: Frontier.




Conclusions

Elimination of the frontier e�ect

0 50 100 150

1.8

2.0

2.2

2.4

2.6

Months

0 50 100 15016

0017

0018

0019

0020

0021

0022

0023

00

Months

Figure: Left: Frontier. Right: Total output




Conclusions

Elimination of the frontier e�ect

0 50 100 150

1.8

2.0

2.2

2.4

2.6

Months

0 50 100 150

1.5

1.6

1.7

1.8

1.9

Months

Figure: Left: Frontier. Right: Average productivity of capital stocks




Conclusions

Conclusions

The smoothing of the business cycle can have negative longterm e�ects on economic growth if this policy has a negativeimpact on the innovation rate and thus on the growth of thefrontier.

If this e�ect can be neutralized: There are only short termdi�erences in the output level and the di�usion.

The short term e�ects on the di�usion rate are too weak (andtoo cyclical) to have negative e�ects on the economicdevelopment.




Conclusions

Thank you for your attention!

Information about Eurace@unibi and a (very recent) extensivemodel documentation at:

http://www.wiwi.uni-bielefeld.de/vpl1/projects/eurace/eurace-unibi.html/


the [email protected] model - global systems dynamics and policy

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