Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/174526
Authors: 
Fagiolo, Giorgio
Roventini, Andrea
Year of Publication: 
2016
Series/Report no.: 
LEM Working Paper Series 2016/17
Abstract: 
The Great Recession seems to be a natural experiment for economic analysis, in that it has shown the inadequacy of the predominant theoretical framework - the New Neoclassical Synthesis (NNS) - grounded on the DSGE model. In this paper, we present a critical discussion of the theoretical, empirical and political-economy pitfalls of the DSGE-based approach to policy analysis. We suggest that a more fruitful research avenue should escape the strong theoretical requirements of NNS models (e.g., equilibrium, rationality, representative agent, etc.) and consider the economy as a complex evolving system, i.e. as an ecology populated by heterogenous agents, whose far-from-equilibrium interactions continuously change the structure of the system. This is indeed the methodological core of agent-based computational economics (ACE), which is presented in this paper. We also discuss how ACE has been applied to policy analysis issues, and we provide a survey of macroeconomic policy applications (fiscal and monetary policy, bank regulation, labor market structural reforms and climate change interventions). Finally, we conclude by discussing the methodological status of ACE, as well as the problems it raises.
Subjects: 
Economic Policy
New Neoclassical Synthesis
New Keynesian Models
DSGE Models
Agent-Based Computational Economics
Agent-Based Models
Complexity Theory
Great Recession
Crisis
JEL: 
B41
B50
E32
E52
Document Type: 
Working Paper

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