A computational agent-based simulation of an artificial monetary union for dynamic comparative institutional analysis

Abstract

We present a highly stylized agent-based computational model (ABM) of an artificial economic and monetary union. Contrary to other current macroeconomic ABMs, it focuses on the relations/consequences of creditfinanced, high-leveraged economies, conspicuous consumption within and across borders and a monetary and economic union of individual countries. The model includes a number of boundedly rational agents of the following types: a central bank, states & governments, banks, firms and households. In summary, it enables simulations of interacting political economies within a monetary union, entailing complex interactions and interdependencies between centralized governments/central banks and decentralized markets for goods (regular and status),labor, loans as well as bonds from the bottom up. Through its modular structure, we are able to apply dynamic comparative institutional analysis by investigating medium and long-run economic effects.

Budgetary rigour with stimulus in lean times: Policy advices from an agent-based model

“…Among the relatively small number of agent-based macro-models in circulation, see e.g. Ashraf et al (2014);Delli Gatti et al (2011);Gabbi et al (2015); Gualdi et al (2015); Rengs and Wackerle (2014); Riccetti et al (2013); Wackerle et al (2014), it is worth citing the Keynesian model by (Dosi et al, 2010), which has been recently used to test di↵erent fiscal and monetary policy scenarios (Dosi et al, 2013(Dosi et al, , 2015. Results show that the introduction of constrained fiscal rules mimicking the Stability and Growth Pact or the Fiscal Compact worsen the performance of the economy as well as public finances, while the best policy mix able to stabilized macroeconomic fundamentals is the combination of an unconstrained fiscal policy with a dual-mandate monetary policy, targeting both inflation and unemployment.…”

Agent-based computational models– a formal heuristic for institutionalist pattern modelling?

“…There are already institutionalist studies based on ACE models, e.g. Hodgson and Knudsen (2004), Heinrich (2011), Wäckerle (2014), Rengs and Wäckerle (2014), but as insitutionalist researchers become less sceptical against the method, there will emerge a huge number of questions to be addressed via ACE models embedded in an institutionalist framework. The attempt to elaborate on more general concepts from case studies and to further investigate the role of certain network structures for the social stratification are only two examples for starting points.…”

“…This aligns well with the research praxis of institutionalists not to stop with the postulation of a certain preference relation but to elaborate and justify their particular behavioural assumptions more concretely. More concrete motives include a thirst for power, altruism, an instinct of workmanship, idle curiosity, conspicuous consumption and time and space dependent habits (see Rengs and Wäckerle (2014) for a concrete example).…”

New Perspectives on Institutionalist Pattern Modeling: Systemism, Complexity, and Agent-Based Modeling

“…Other recent examples of papers that successfully make use of ABM to implement an institutional pattern model include the following: Wolfram Elsner and Torsten Heinrich (2009), who focus on the meso-level of the economy, use an ABM to study the group sizes and agency mechanisms that foster cooperative behavior among agents and use their findings to provide a model-based rationale for the existence of a "variety of capitalism" (Peter Hall and John Soskice 2001). Bernhard Rengs and Manuel Wäckerle (2014) build an extensive ABM of the European Monetary Union. They include fundamental institutionalist concepts such as conspicuous consumption in a model that represents both the real and the financial sector of several countries, including their political institutions, and allows for a dynamic analysis of different institutional settings.…”