"Causes of Financial Instability: Don’t Forget Finance"

Given the economy's complex behavior and sudden transitions as evidenced in the 2007–08 crisis, agent-based models are widely considered a promising alternative to current macroeconomic practice dominated by DSGE models. Their failure is commonly interpreted as a failure to incorporate heterogeneous interacting agents. This paper explains that complex behavior and sudden transitions also arise from the economy's financial structure as reflected in its balance sheets, not just from heterogeneous interacting agents. It introduces "flow-of-funds" and "accounting" models, which were preeminent in successful anticipations of the recent crisis. In illustration, a simple balance-sheet model of the economy is developed to demonstrate that nonlinear behavior and sudden transition may arise from the economy’s balance-sheet structure, even without any microfoundations. The paper concludes by discussing one recent example of combining flow-of-funds and agent-based models. This appears a promising avenue for future research.Credit Crisis; Finance; Complex Systems; DSGE; Agent-based Models; Stock-flow Consistent Models

A Study on Agent-based model for Labor Economics and Labor Market Policy Evaluation

The most recent sequence of financial crisis and the increasing economic instability are letting us turn more and more incredulous, triggering the reflective need to search for a newer methodology on economic analysis. Furthermore, the rapid growth in information and communication technology as well as the advancement into more knowledge-based society are accelerating the rate of how fast this world is changing, creating more controversial topics such as the fourth industrial revolution, the introduction to Artificial Intelligence, Big Data, and so on. This sort of rapid social growth depreciates the accuracy of economic prediction, thus emphasizing the essential necessity to look for a newer economic analysis methodology. Simulation methodology, agent-based modeling in particular, by supposing a disparate consumer and a disparate manufacturer and drawing a conclusion from analyzed results on computer, suggests a possibility that it could imitate a reality indescribable in former methodologies. Now that it can observe the agents’ activities, it can create experimental situations and evaluate a variety of policy scenarios on a comprehensive basis. In addition, after having found out that a macroscopic phenomenon was shown as an outcome of their interactions between disparate individuals, this has made it easier for us to explore the relationship between a microscopic activity and the macroscopic phenomenon. The following research includes the experimental incorporation of a dynamic model of education-training, in an attempt to introduce agent-based modeling as one of the methodologies on economic analysis and to discover its applicability as a tool to evaluate labor market policies. As a result, we hoped to leave the door open for agent-based modeling to be actively sought for as an economic analysis methodology and to be utilized for policy making and during its evaluation process. After analyzing the data gathered from the dynamic model of education-training, it was demonstrated that a strategy involving a corporate investment in education-training was inferior to a strategy without the corporate investment in education-training. Nevertheless, for some enterprises, education-training investment strategy was more financially benefitting, therefore in a societal context, allowing education-training investment enterprises to have a long-run in the industry. On the other hand, financial support did not only accelerate economic production, but also increased societal efficiency by putting more weight onto education-training investment enterprises. Therefore any form of financial support from the society in education-training, up to certain extent, was considered necessary, if hoping for increasing societal productivity through education- training investment. Moreover, career education-training of the people in the low-income bracket and the jobless was noted indispensable, at least to prevent failure in equity due to increasing wage inequality

Instability and network effects in innovative markets

We consider a network of interacting agents and we model the process of choice on the adoption of a given innovative product by means of statistical-mechanics tools. The modelization allows us to focus on the effects of direct interactions among agents in establishing the success or failure of the product itself. Mimicking real systems, the whole population is divided into two sub-communities called, respectively, Innovators and Followers, where the former are assumed to display more influence power. We study in detail and via numerical simulations on a random graph two different scenarios: no-feedback interaction, where innovators are cohesive and not sensitively affected by the remaining population, and feedback interaction, where the influence of followers on innovators is non negligible. The outcomes are markedly different: in the former case, which corresponds to the creation of a niche in the market, Innovators are able to drive and polarize the whole market. In the latter case the behavior of the market cannot be definitely predicted and become unstable. In both cases we highlight the emergence of collective phenomena and we show how the final outcome, in terms of the number of buyers, is affected by the concentration of innovators and by the interaction strengths among agents.Comment: 20 pages, 6 figures. 7th workshop on "Dynamic Models in Economics and Finance" - MDEF2012 (COST Action IS1104), Urbino (2012

A Computational Model and Convergence Theorem for Rumor Dissemination in Social Networks

The spread of rumors, which are known as unverified statements of uncertain origin, may cause tremendous number of social problems. If it would be possible to identify factors affecting spreading a rumor (such as agents' desires, trust network, etc.), then this could be used to slowdown or stop its spreading. A computational model that includes rumor features and the way a rumor is spread among society's members, based on their desires, is therefore needed. Our research is centering on the relation between the homogeneity of the society and rumor convergence in it and result shows that the homogeneity of the society is a necessary condition for convergence of the spreading rumor.Comment: 29 pages, 7 figure

Consequences of Political Instability, Governance and Bureaucratic Corruption on Inflation and Growth: The Case of Pakistan

This paper presents a theoretical model with micro-foundations that captures some important features of Pakistan's economy which have emerged in sixty-four years of its history. A comparison of Pakistan’s economic performance during different regimes shows that macroeconomic fundamentals tend to show an improvement during the autocratic regimes as compared with those prevailing during democratic regimes. In particular, periods of autocratic regimes are typically characterized by low inflation, robust growth and low level of bureaucratic corruption due to better governance. In contrast, the economic performance during the democratic regimes has been observed to worsen with weak governance and high levels of corruption, high inflation due partly to reliance on seigniorage to finance public spending, and lackluster growth. Using annual data from 1950 to 2011, computational modeling is carried out by applying Markov-Regime switching technique with maximum-likelihood procedures. The estimation results based on empirical modeling setup are supportive of the above stylized-facts and also confirm the implications of the theoretical model.Political Instability; Governance; Corruption; Inflation; Growth