AGENT‐BASED MACROECONOMICS AND DYNAMIC STOCHASTIC GENERAL EQUILIBRIUM MODELS: WHERE DO WE GO FROM HERE?. (14th May 2018)

• Record Type: Journal Article
• Authors: Dilaver, Özge; Calvert Jump, Robert; Levine, Paul
• Is Part Of: Journal of economic surveys. Volume 32:Number 4(2018)
• Page Start: 1134
• Page End: 1159
• Publication Date: 2018-05-14
• Subjects: Agent‐based computational economics -- Agent‐based macroeconomics -- Dynamic stochastic general equilibrium models -- New Keynesian behavioural models; Economics -- Periodicals; 330
• DOI: 10.1111/joes.12249
• Languages: English
• ISSNs: 0950-0804

Abstract

Abstract: Agent‐based computational economics (ACE) has been used for tackling major research questions in macroeconomics for at least two decades. This growing field positions itself as an alternative to dynamic stochastic general equilibrium (DSGE) models. In this paper, we provide a much needed review and synthesis of this literature and recent attempts to incorporate insights from ACE into DSGE models. We first review the arguments raised against DSGE in the macroeconomic ACE (macro ACE) literature, and then review existing macro ACE models, their explanatory power and empirical performance. We then turn to the literature on behavioural New Keynesian models that attempts to synthesize these two approaches to macroeconomic modelling by incorporating insights of ACE into DSGE modelling. Finally, we provide a thorough description of the internally rational New Keynesian model, and discuss how this promising line of research can progress.