ACE Research Area:
Agent-Based Macroeconomics

Last Updated: 8 April 2021

Site Maintained By:
Leigh Tesfatsion
Research Professor & Professor Emerita of Economics
Courtesy Research Professor of Electrical & Computer Engineering
Heady Hall 260
Iowa State University
Ames, Iowa 50011-1054
tesfatsi AT

Macroeconomic Coordination (Course Module)
ACE Research Area: Agent-Based Financial Economics
Macro and Financial Economics Resources
Online ACE Course (Self-Study eBook)
ACE Website

Table of Contents:

Basic Issues

General Introductory Readings

General Introductions Listed by Author

Additional Introductory Readings

Other Readings of Interest

  • George Akerlof and Robert J. Shiller, Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism, Princeton University Press, 2009.
    Note: A short summary of the theme of this book, which provides the essence of George Ackerlof's 2009 T. W. Schultz Memorial Address at the 2009 ASSA meeting in San Francisco in January 2009, can be obtained here (pdf,21KB).

  • George A. Akerlof, "Behavioral Macroeconomics and Macroeconomic Behavior", The American Economic Review, Volume 92, No. 3, June 2002, pages 411-433.
    Note: This is a revised version of the Nobel Lecture Akerlof delivered in Sweden on December 8, 2001.

  • Peter Albin and Duncan K. Foley, "Decentralized, Dispersed Exchange Without an Auctioneer", Journal of Economic Behavior and Organization, Volume 18, 1992, pp. 27-51. Published article available from Science Direct.
    Abstract: Albin and Foley simulate pure exchange among geographically dispersed utility-seeking agents with endowments of two distinct types of goods and with bounds to rationality and calculation. Exchange is entirely decentralized. It is initialized by individual agents who broadcast costly messages to their neighbors indicating their interest in engaging in bilateral trades. This decentralized mechanism is shown to achieve a substantial improvement in the allocation of resources and the average welfare of agents in comparison with randomized initial endowments, but persistent differences arise from Walrasian equilibrium.

  • Masanao Aoki and Hiroshi Yoshikawa, Editors, Reconstructing Macroeconomics, special Issue, Economics: The Open-Access Open-Assessment E-Journal, 2009. on-line.
    Abstract: "Having sound `micro foundations for macroeconomics' has been long taken as building sophisticated optimization of an individual economic agent into a macro model. Thus, the `micro-founded' macroeconomics today begins with optimization of the representative consumer. In stark contrast to this main-stream approach in economics, it is widely recognized in natural sciences such as physics, chemistry, biology, and ecology, that a different approach is necessary when we analyze macro system consisting of a large number of micro units. The guiding principle there is that precise behavior of micro unit is irrelevant; we must resort to statistical approach to macro system as a whole. Why not in macroeconomics? The co-editors of the special issue advocated this idea in their book entitled Reconstructing Macroeconomics, Cambridge University Press, 2007. (This issue includes) papers that are intrinsically probabilistic, that is, based broadly on the principle of statistical physics. Key words such as power-law (Pareto-Zipf-Gibrat law), and econophysics may give you some idea (of the contents)."

  • Quamrul Ashraf, Boris Gershman, and Peter Howitt, "Banks, Market Organization, and Macroeconomic Performance: An Agent-Based Computational Analysis" (pdf,414KB), Cleveland Federal Reserve Bank Conference, revised April 2010. See also the authors' accompanying C++ software (zip,77KB) and the Discussant Comments by Robert J. Tetlow (pdf,161KB).
    Abstract: "This paper is an exploratory analysis of the role that banks play in supporting what Jevons called the mechanism of exchange. It considers a model economy in which exchange activities are facilitated and coordinated by a self-organizing network of entrepreneurial trading firms. Collectively these firms play the part of the Walrasian auctioneer, matching buyers with sellers and helping the economy to approximate equilibrium prices that no individual is able to calculate. Banks affect macroeconomic performance in this economy because their lending activities facilitate entry of trading firms and also influence their exit decisions. Both entry and exit have conflicting effects on performance, and we resort to computational analysis to understand how these conflicting effects are resolved. Our analysis sheds new light on the conflict between micro prudential bank regulation and macroeconomic stability."

  • Robert Clower and Peter Howitt, "Taking Markets Seriously: Groundwork for a Post Walrasian Macroeconomics", Chapter 2 (pp. 21-37) in David Colander (ed.), Beyond Microfoundations: Post Walrasian Macroeconomics, Cambridge University Press, Cambridge, UK, 1996.

  • David Colander (ed.), Post Walrasian Macroeconomics: Beyond the Dynamic Stochastic General Equilibrium Model, Cambridge University Press, Cambridge, UK, 2006.
    Abstract: "This book provides state-of-the-art perspectives on macro theory from many of the world's leading theorists and methodologists. (It is suitable) as a course book or supplementary textbook in graduate macroeconomics. (The book also) includes a historical section that surveys the development of macroeconomics."

  • Paul De Grauwe, "Top-Down Versus Bottom-Up Macroeconomics" (pdf,371KB), CESifo Conference, Munich, November 6-7, 2009.
    Abstract:"I distinguish two types of macroeconomic models. The first type are top-down models in which some or all agents are capable of understanding the whole picture and use this superior information to determine their optimal plans. The second type are bottom-up models in which all agents experience cognitive limitations. As a result, these agents are only capable of understanding and using small bits of information. These are models in which agents use simple rules of behavior. These models are not devoid of rationality. Agents in these models behave rationally in that they are willing to learn from their mistakes. These two types of models produce a radically different macroeconomic dynamics. I analyze these differences."

  • Christophe Deissenberg, Sander van der Hoog, and Herbert Dawid, "EURACE: A Massively Parallel Agent-Based Model of the European Economy" (pdf,1.3MB), Document de Travail no. 2008-39, Groupement de Recherche en Economie Quantitative d'Aix-Marseille (GREQAMB), 24 June 2008.
    Abstract: EURACE is a major European attempt to construct an agent-based model of the European economy with a very large population of autonomous, purposive agents interacting in a complicated economic environment. To create it, major advances are needed, in particular in terms of economic modeling and software engineering. In this paper, we describe the general structure of the economic model developed for EURACE and present the Flexible Large-scale Agent Modeling Environment (FLAME) that will be used to describe the agents and run the model on massively parallel supercomputers. Illustrative simulations with a simplified model based on EURACE’s labor market module are presented.

  • Domenico Delli Gatti, Edoardo Gaffeo, Mauro Gallegati, Gianfranco Giulioni, and Antonio Palestrini, Emergent Macroeconomics: An Agent-Based Approach to Business Fluctuations, Springer Publishers, Series: New Economic Windows, 2008, XII, 114 pp., 30 illus., Hardcover ISBN: 978-88-470-0724-6, see also a (2006 Preprint,pdf,2.1MB)
    Abstract (From the Publisher): "This book contributes substantively to the current state-of-the-art of macroeconomics by providing a method for building models in which business cycles and economic growth emerge from the interactions of a large number of heterogeneous agents. Drawing from recent advances in agent-based computational modeling, the authors show how insights from dispersed fields like the microeconomics of capital market imperfections, industrial dynamics and the theory of stochastic processes can be fruitfully combined to improve our understanding of macroeconomic dynamics."

  • Giovanni Dosi, Giorgio Fagiolo, and Andrea Roventini, "An Evolutionary Model of Endogenous Business Cycles" (pdf,217KB), Computational Economics 27 (2006), 3-34.
    Abstract: The authors present an evolutionary model of industry dynamics comprising firms and consumer-workers that yields endogenous business cycles with "Keynesian" features. The model replicates many important stylized facts concerning microeconomic and macroeconomic dynamics, including: relative volatility properties of investment, consumption, and GDP; procyclical, coincident, and anticyclical variables; firm size distributions; and firm growth distributions.

  • Giovanni Dosi, Giorgio Fagiolo, and Andrea Roventini, "Schumpeter Meeting Keynes: A Policy-Friendly Model of Endogenous Growth and Business Cycles" (pdf,402KB), Journal of Economic Dynamics and Control 34 (2010), 1748-1767.
    Abstract: This paper studies an agent-based model that bridges Keynesian theories of demand-generation and Schumpeterian theories of technology-fueled economic growth. The authors employ the model to investigate the properties of macroeconomic dynamics and the impact of public policies on supply, demand, and other fundamental aspects of the economy.

  • John Duffy, Macroeconomics: A Survey of Laboratory Research (pdf,885KB), 2008, Chapter prepared for the Handbook of Experimental Economics Vol. 2, J. Kagel and A.E. Roth, Eds.
    Abstract: "This chapter surveys laboratory experiments addressing macroeconomic phenomena. The first part focuses on experimental tests of the microfoundations of macroeconomic models discussing laboratory studies of intertemporal consumption/savings decisions, time (in)consistency of preferences and rational expectations. Part two explores coordination problems of interest to macroeconomists and mechanisms for resolving these problems. Part three looks at experiments in specific macroeconomic sectors including monetary economics, labor economics, international economics as well-as large scale, multi-sector models that combine several sectors simultaneously. The final section addresses experimental tests of macroeconomic policy issues."

  • John Duffy, Experimental Macroeconomics (pdf,119KB), August 2006, Prepared for the New Palgrave Dictionary of Economics, 2nd edition.
    Abstract: This Palgrave entry provides a brief overview of experimental macroeconomics, a subfield of experimental economics that makes use of controlled laboratory methods to understand aggregate economic phenomena and to test the specific assumptions and predictions of macroeconomic models.

  • Joshua Epstein and Robert Axtell, Growing Artificial Societies: Social Science from the Bottom Up, The MIT Press, Cambridge, MA, 1996.
    Note: A review (pdf,43KB) of this monograph is given by L. Tesfatsion in the Journal of Economic Literature, Vol. XXXVI, March 1998, 233-234.

  • Roman Frydman & Michael D. Goldberg, Beyond Mechanical Economics: Asset Price Swings, Risk, and the Role of the State, Princeton University Press, 2011, 285 pp.
    Abstract: "In (this book) Frydman and Goldberg show how the failure to abandon (the assumption that markets act mechanically and economic change is fully predictable) hinders our understanding of how markets work, why price swings help allocate capital to worthy companies, and what role government can and can't play."

  • Roman Frydman & Michael D. Goldberg (Foreword by Edmund S. Phelps), Imperfect Knowledge Economics: Exchange Rates and Risk, Princeton University Press, 2007, 368 pp.
    Abstract: "Frydman and Goldberg offer a long-overdue response to the shortcomings of conventional economic models. Drawing attention to the inherent limits of economists' knowledge, they introduce a new approach to economic analysis: Imperfect Knowledge Economics (IKE). IKE rejects exact quantitative predictions of individual decisions and market outcomes in favor of mathematical models that generate only qualitative predictions of economic change. Using the foreign exchange market as a testing ground for IKE, this book sheds new light on exchange-rate and risk-premium movements, which have confounded conventional models for decades."

  • Herbert Gintis, The Emergence of a Price System from Decentralized Bilateral Exchange (pdf,382KB), The B.E. Journal of Theoretical Economics, Vol. 6, Issue 1 (Contributions), Article 13, August 18, 2005. Published article available from the Berkeley Economics Press here.
    Abstract: "This paper derives the price system in an agent-based model of decentralized bilateral exchange. When the economy is out of equilibrium, prices are individual subjective estimates of payoff-maximizing exchange ratios and hence are the private information of individual agents. The author shows, however, that a system of public prices emerges in the long run, and these public prices are equilibria of the underlying general equilibrium model. The author notes that this is the first time that a general, decentralized adjustment mechanism has been constructed that renders market equilibrium dynamically stable in a production and exchange economy (albeit highly simplified)."

  • Herbert Gintis, The Dynamics of General Equilibrium (pdf,747KB), The Economic Journal, Vol. 117 (October), 2007, 1280-1309.
    Abstract: "The Walrasian general equilibrium model is the centrepiece of modern economic theory, but progress in understanding its dynamical properties has been meagre. This article shows that the instability of Walras' Tâtonnement process is due to the public nature of prices, which leads to excessive correlation in the behaviour of economic agents. When prices are private information, a dynamic with a globally stable stationary state obtains in economies that are unstable in the tâtonnment process. We provide an agent-based model of a multi-sector Walrasian economy with production and exchange, in which prices are private information. This economy is dynamically well behaved."

  • Blake LeBaron, "Active and Passive Learning in Agent-Based Financial Markets" (pdf,125KB), Working Paper, Brandeis University, June 2010.
    Abstract: "This short note compares and contrasts two forms of learning which are present in most agent-based financial markets. First, passive learning refers to a form of "as if rationality" where wealth accumulates on strategies which have done relatively well. Second, active learning refers to the active switching of agents across strategies. Most heterogeneous agent markets contain some form of both these types of learning. From what we know so far the dynamics of each may be quite different, and may yield a rich and complex joint dynamic."

  • Vernon L. Smith, Rationality in Economics: Constructivist and Ecological Forms, Cambridge University Press, New York, 2008
    Abstract: "The principal findings of experimental economics are that impersonal exchange in markets converges in repeated interaction to the equilibrium states implied by economic theory, under information conditions far weaker than specified in the theory. In personal, social, and economic exchange, as studied in two-person games, cooperation exceeds the prediction of traditional game theory. This book relates these two findings to field studies and applications and integrates them with the main themes of the Scottish Enlightenment and with the thoughts of F. A. Hayek."

  • Frank Westerhoff, "An Agent-Based Macroeconomic Model with Interacting Firms, Socio-Economic Opinion Formation, and Optimistic/Pessimistic Sales Expectations" (pdf,278KB), New Journal of Physics 12, 2010, 07035 (electronic).
    Abstract: "We propose a simple agent-based macroeconomic model in which firms hold heterogeneous sales expectations. A firm may either optimistically expect an increase in its sales or pessimistically expect the opposite. Whether a given firm is optimistic or pessimistic depends on macroeconomic conditions and the average mood prevailing within its social/local neighborhood. For instance, the probability of a firm taking an optimistic view increases not only during a boom but also with the number of its optimistic neighbors. We show that such an economy may give rise to co-evolving dynamics between the business cycle and the firms’ average sentiment."

    Software/Toolkits, Demos, and Models

    • Annotated list of pointers to ACE/CAS General Software and Toolkits

    • Annotated list of pointers to ACE/CAS Computational Laboratories and Demonstration Software

    • The ACE Dynamic Macroeconomic Game is a C++ implementation of the ACE computational platform developed in Sinitskaya and Tesfatsion (JEDC, 2015) for the study of macroeconomic systems as locally-constructive sequential games. Consumer and firm learning methods can range from simple reactive reinforcement to sophisticated anticipatory learning algorithms for the approximate achievement of intertemporal objectives.

    • The Java Macro Agent-Based (JMAB) Programming Tool Suite, developed by Allesandro Caiani and Antoine Godin, is explicitly designed for the development of agent-based stock-flow consistent (AB-SFC) models. It provides a flexible and highly modular computational framework incorporating general procedures to check the stock-flow consistency of modeled processes at the macro, meso, and micro levels. For example, it has been used to handle heterogeneous real and financial stocks in agents' balance sheets as well as the representation of commercial and financial networks; see Caiani et al. (JEDC, 2016).

    • Quamrul Ashraf, Boris Gershman, and Peter Howitt, "Banks, Market Organization, and Macroeconomic Performance: An Agent-Based Computational Analysis" (pdf,414KB), Cleveland Federal Reserve Bank Conference, revised April 2010, with accompanying C++ software (zip,77KB).

    • Herbert Dawid, Simon Gemkow, Philipp Harting, Sander van der Hoog, and Michael Neugart have developed the Eurace@Unibi Model, an agent-based spatial modeling of a closed macroeconomy that provides a framework for economic policy analysis as well as for the examination of generic macroeconomic research questions. Documentation, source code, a user manual, publications, and sample simulation output can be found at the above site.

    • Gregor Böhl, Sander van der Hoog, Philipp Harting, Simon Gemkow, and Herbert Dawid have developed the ETACE Virtual Appliance, a suite of programmes to facilitate the design, generation, running, and analyzing of agent-based simulations, including the Eurace@Unibe Model and FLAME (Flexible Large-scale Agent Modelling Environment).

    • J. Doyne Farmer, "CRISIS (Complexity Research Initiative for Systematic Instabilities): Vision, Status, Plans, and Questions" (pdf,679KB), European Commission. CRISIS is an extensible open source software library (MASON/Java) of standardized building blocks for the construction of agent-based macroeconomic models. The purpose is to facilitate the modeling of interactions between real and financial sectors in a macroeconomy for the purpose of studying policy tools for central banks.

    • The ICEACE Project is devoted to the development of an agent-based model and simulator of the Icelandic economy.

    • JAMEL (Java Agent-based MacroEconomic Laboratory), developed by Pascal Seppecher (GREQAMB), is a cross-platform macroeconomic simulator developed in Java. Applications to date include the study of macroeconomic systems with endogenous money, with productivity shocks, with expenditure shocks, with a flexible labor market, and with a minimum wage. [NOTE: The first time this page is opened, there is a delay due to the loading of a Java applet.]

    • Marc Oeffner, "Agent-Based Keynesian Macroeconomics" (pdf, 3.4MKB), Dissertation, Julius-Maximilians-Universität Würzburg, Germany, September 2008.
      Abstract: The 61-page introduction to this thesis provides the most comprehensive survey to date of the existing and potential uses of ACE modeling tools for the development and study of macroeconomic systems. The final chapters of this thesis present, implement, validate, and study a provide a proof-of-concept monetary macroeconomic model using the SeSAm multi-agent simulation environment. Complete code for this SeSAm implementation can be obtained in a zip file (39MB) available here.

    • Participants in the project EOS: Economics Via Object-oriented Simulation under the direction of Ken Steiglitz (Computer Science, Princeton University) have developed a general, extensible, and hierarchical framework for economic simulation in Java. The goal is to have this software be a "starting point for an open-source project that can demonstrate fundamental economic principles in concrete terms, and, ultimately, become a testbed for evaluating policies in realistically large and complex models of whole economies." The code developed to date, together with documentation, can be downloaded from the above project site.

    • The PlatBox Project, previously known as the Boxed Economy Project, is an agent-based computer software platform for the simulation of macroeconomies developed by researchers at the Iba Laboratory at Keio University, Japan. The main purpose of the PlatBox Project is to permit researchers to study, understand, and form predictions for real economic systems. Currently, the project is organized by Takashi Iba (Keio University) and Nozomu Aoyama. The PlatBox Simulator and Component Builder are currently offered only in Japanese; for details, visit here. However, English versions are expected to be out soon.

    Research Groups and Sites

    • Complexity Research Initiative for Systematic Instabilities (CRISIS) is a consortium of universities, private firms and policymakers that aims to build a new model of the economy and financial system that is based on how people and institutions actually behave. It was set up in the wake of the global financial crisis that showed that existing models that had been adequate for the good times were utterly inadequate for predicting major crises.

    • Under the direction of Roger Guesnerie (Collége de France, Paris), a group of critics of the Rational Expectations Hypothesis (REH), notably in the study of financial markets and macroeconomies, has come together to organize the International Network on Expectational Coordination (INEXC). The first objective of the INEXC is to provide support for the dissemination of knowledge through conferences, workshops, and exchanges of visitors. The second objective is to attract and support the work of younger colleagues who wish to pursue alternative approaches to expectational coordination issues, particularly high-risk high-expected return approaches. A more detailed description of purpose for INEXC can be found here.

    • The Rebuilding Macroeconomics project is funded by the Economic and Social Research Council, based in the United Kingdom. The stated long-term aim of the project is to transform macroeconomics back into a policy relevant social science through the support of interdisciplinary research and new methods of macroeconomic analysis.

      The Rebuilding Macroeconomics project interprets economies as consisting of evolving networks of agents who interact to interpret a world of unfolding uncertainty. The modeling of economies should thus entail a realistic portrayal of human social interaction to understand how economic systems evolve dynamically over time. The phenomena that emerge from such models – growth, cycles, crashes, technological revolutions and climate degradation – are examples of real-world macro phenomena that project members seek to understand.

      To encourage new research in macroeconomics from a complexity perspective, the Rebuilding Macroeconomics project is hosting a competition seeking original, innovative and important research papers. This must be work that has not previously been circulated or published. The first prize will be c.$16,000 (depending on the exchange rate). Authors must state clearly which important real-world macroeconomic question they are addressing, and how their analysis provides insight and understanding beyond standard methods of analysis. Applicants are encouraged to prioritise insight, exposition and policy relevance. Applications are particularly welcome from young scholars. The competition rules can be found here.

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