Papers on Economic Agent-Based simulation

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Non-Walrasian Equilibrium: Illustrative Examples

Paper by Tesfatsion (7/31/08)

  • Do all markets always clear, or can there be equilibrium without total market clearing?
  • Keynesian equilibrium
    • Those with incentive to change state have no power to, those who have power to change stare have no incentive
    • Multiple possible equilibrium states
  • Signaling problems
    • Incomplete signaling
      • Do not signal what future actions might be, so others have to make investment decisions that might be wrong
    • Signaling not credible
      • Even if signal today, not credible unless backed today by purchasing power
  • Dynamic Stochastic General Equilibrium (DSGE) Model
    • Allows disequilibrium, due to shocks
    • Equilibrium would exist without shocks
    • Tends toward equilibrium in the long run
  • Involuntary Unemployment
    • Wage/labor not in equilibrium
    • Those with incentive to change state have no power to, those who have power to change stare have no incentive
      • Unemployment equilibrium
    • Optimism/pessimism about future signals can affect this equilibrium
  • Demand Signaling
    • How do customers signal future demand?
    • Need current purchasing power to
    • Liquidity constraints
    • Clower: liquidity and credit constraints can lead to persistent involuntary unemployment due to signaling problems
      • People can’t work as much as they want
      • Can’t borrow vs. future income
  • Effective Equilibrium
    • Holds given
      • Consumer and firm on effective demand and supply curves
      • All price and dividend expectations are fulfilled
      • Effective supply is at least at great as effective demand
    • Firm as price taker in wage
      • Would not lower unless perceived high employment supply
  • Coordination Failure
    • Mutual gains not realized because no individual has incentive to change from current behavior
    • Can be Nash Equilibrium, but not Pareto efficient

The paper can be found here.


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