Academic Commons

Articles

Heterogeneous Interacting Agent Models for Understanding Monetary Economies

Stiglitz, Joseph E.; Gallegati, Mauro

The representative agent (RA) approach of the mainstream economics allows a rich analysis of intertemporal maximization; but it rules out the possibility of the analysis of complex interactions. It is the latter that are at the root of this and other crises. We argue that the RA approach is simply not up to the task of enhancing our understanding of modern macroeconomies and that the standard cannot provide an adequate framework for understanding the economy even in more normal times. We advocate a bottom-up approach, where high-level (macroeconomic) systems may possess new and different properties than the low-level (microeconomic) systems on which they are based. The heterogeneous agent approach provides an alternative, one which has already proven its metal in helping us understand the interlinkages which helped give rise to the crisis.

Subjects

Files

Also Published In

Title
Eastern Economic Journal

More About This Work

Academic Units
Economics
Published Here
March 26, 2013
Academic Commons provides global access to research and scholarship produced at Columbia University, Barnard College, Teachers College, Union Theological Seminary and Jewish Theological Seminary. Academic Commons is managed by the Columbia University Libraries.