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Title:Modeling Maximum Entropy and Mean-Field Interaction in Macroeconomics PDF Logo
Authors:Di Guilmi, Corrado
Gallegati, Mauro
Landini, Simone
Issue Date:2008
Series/Report no.:Economics Discussion Papers / Institut für Weltwirtschaft 2008-36
Abstract:The representation of the economic system, from a complexity perspective, focuses on interactions among heterogeneous agents in conditions of uncertainty. Heterogeneity entails asymmetric reactions to shocks and, through interaction mechanisms and feedback loops at micro, macro and meso level, these diverse reactions influence behaviours of other agents. Such a system cannot be modelled with mainstream economics' tools. In this work we propose a stochastic dynamic model with heterogeneous firms. Their responses to stochastic shocks, in order to maximize profit, modifies their financial ratios, determining in this way the evolution of the system. The model is analytically solved by means of maximum entropy maximization and master equation's solution techniques (Aoki and Yoshikawa, 2006).
Subjects:Business cycles
financial fragility
stochastic aggregation
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Document Type:Working Paper
Appears in Collections:Economics: The Open-Access, Open-Assessment E-Journal - Discussion Papers

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