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Papers by Tiziana Assenza

Research paper thumbnail of Emergent dynamics of a macroeconomic agent based model with capital and credit

Journal of Economic Dynamics and Control, 2015

ABSTRACT In this paper we present and discuss a Macroeconomic Agent-Based Model with Capital and ... more ABSTRACT In this paper we present and discuss a Macroeconomic Agent-Based Model with Capital and Credit (CC-MABM) which builds upon the framework put forward by Delli Gatti et al. (2011). The novelty of this model with respect to the previous framework consists in the introduction of a stylized supply chain where upstream firms – i.e. producers of capital goods (K-firms) – supply a durable and sticky input (capital) to the downstream firms, who produce consumption goods (C-firms) to be sold to households. Both C-firms and K-firms resort to bank loans to satisfy their financing needs. There are two-ways feedbacks between firms and markets which yield interesting emerging properties at the macro level. We show that the interaction of upstream and downstream firms and the evolution of their financial conditions – in a nutshell: Capital and Credit – are essential ingredients of a “crisis” i.e. a sizable slump followed by a long recovery.

Research paper thumbnail of Was Bernanke Right? Targeting Asset Prices May not be a Good Idea After All

International Symposia in Economic Theory and Econometrics, 2015

Research paper thumbnail of Experiments on expectations in macroeconomics and finance

Research paper thumbnail of Intertemporal Greenwald-Stiglitz

Research paper thumbnail of Animal Spirits, Heterogeneous Expectations and the Amplification and Duration of Crises

SSRN Electronic Journal, 2000

We introduce a simple equilibrium model of a market for loans, where households lend to firms bas... more We introduce a simple equilibrium model of a market for loans, where households lend to firms based on heterogeneous expectations about their loan default probability. Agents select endogenously among heterogeneous expectation rules, based upon their relative performance. Due to strong nonlinearities a small fraction of pessimistic traders already has a large aggregate effect, leading to a crisis characterized by high contract rates for loans and low output. Our stylized model illustrates how animal spirits and heterogeneous expectations may amplify boom and bust cycles and, in particular, how endogenous coordination on pessimistic expectations amplifies crises and slows down recovery.

Research paper thumbnail of Individual Expectations and Aggregate Macro Behavior

SSRN Electronic Journal, 2000

The way in which individual expectations shape aggregate macroeconomic variables is crucial for t... more The way in which individual expectations shape aggregate macroeconomic variables is crucial for the transmission and effectiveness of monetary policy. We study the individual expectations formation process and the interaction with monetary policy, within a standard New Keynesian model, by means of laboratory experiments with human subjects. We find that a more aggressive monetary policy that sets the interest rate more than point for point in response to inflation stabilizes inflation in our experimental economies. We use a simple model of individual learning, with a performance-based evolutionary selection among heterogeneous forecasting heuristics, to explain coordination of individual expectations and aggregate macro behavior observed in the laboratory experiments. Three aggregate outcomes are observed: convergence to some equilibrium level, persistent oscillatory behavior and oscillatory convergence. A simple heterogeneous expectations switching model fits individual learning as well as aggregate outcomes and outperforms homogeneous expectations benchmarks.

Research paper thumbnail of INTEREST RATE RULES AND MACROECONOMIC STABILITY UNDER HETEROGENEOUS EXPECTATIONS

Macroeconomic Dynamics, 2013

High degrees of relative risk aversion induce indeterminacy in cashin-advance economies. This pap... more High degrees of relative risk aversion induce indeterminacy in cashin-advance economies. This paper Þnds that Taylor-style policies can pre-empt such sunspot equilibria. SpeciÞc policy recommendations depend on the fundamentals of the economy, i.e. the empirically true value of coefficient of relative risk aversion. * This paper was written while I was a DFG Heisenberg Fellow. I would like to thank the Federal Reserve Bank of San Francisco for its hospitality as well as Chuck Carlstrom and one anonymous referee for helpful comments.

Research paper thumbnail of Learning in a credit economy

Journal of Economic Dynamics and Control, 2009

In this paper we analyze a credit economy à la Kiyotaki and Moore (JPE, 1997) enriched with learn... more In this paper we analyze a credit economy à la Kiyotaki and Moore (JPE, 1997) enriched with learning dynamics, where both borrowers and lenders need to form expectations about the future price of the collateral. We …nd that under homogeneous learning, the MSV REE for this economy is E-stable and can be learned by agents, but when heterogeneous learning is allowed and uncertainty in terms of a stochastic productivity is added, expectations of lenders and borrowers can diverge and lead to bankruptcy (default) on the part of the borrowers.

Research paper thumbnail of Introduction to the Special Issue on ‘Rethinking policies when heterogeneity matters’

Journal of Economic Dynamics and Control, 2013

Research paper thumbnail of E Pluribus Unum: Macroeconomic modelling for multi-agent economies

Journal of Economic Dynamics and Control, 2013

From the point of view of the average macroeconomist, agent based modelling has an obivious drawb... more From the point of view of the average macroeconomist, agent based modelling has an obivious drawback: It makes impossible to think in aggregate terms. The modeller, in fact, can reconstruct aggregate variables only "from the bottom up" by summing the individual quantities. As a consequence the interpretation of the trasmission mechanism of shocks is somehow arbitrary. We propose a modelling strategy which reduces the dimensionality of an agent based framework by replacing the actual distributional features (in our model: the distribution of …rms'…nancial conditions) with the …rst and second moments of the distribution itself. The main message is that the di¢ culty of thinking in macroeconomic terms when dealing with multi-agent economies can be circumvented by means of an appropriate aggregation procedure -which we label the Modi…ed-Representative Agent -such that the distribution of agents'characteristics can be approximated by (at least) the (…rst and second) moments of the distribution. The moments of the distribution play the role of macroeconomic variables.

Research paper thumbnail of Borrowing constraints and complex dynamics in an OLG framework

Journal of Economic Behavior & Organization, 2009

In this paper we model an OLG economy à la Kiyotaki and Moore whose novel feature is the role of ... more In this paper we model an OLG economy à la Kiyotaki and Moore whose novel feature is the role of money as a store of value and of bequest as a source of funds to be “invested” in landholding. The dynamics generated by the model are generally characterized by ...

Research paper thumbnail of DINAMICHE COMPLESSE IN UN MODELLO MACROECONOMICO DI NON NEUTRALITA'DELLA MONETA A GENERAZIONI SOVRAPPOSTE

Negli ultimi decenni molta letteratura economica si è occupata di indagare gli effetti, nel lungo... more Negli ultimi decenni molta letteratura economica si è occupata di indagare gli effetti, nel lungo periodo, dell'inflazione in mercati finanziari imperfetti (per esempio, Body & Smith (1998), Cordoba & Ripoll (2004), Ragot (2006)). Alcuni di questi modelli riguardano, in particolare, lo ...

Research paper thumbnail of Borrowing Constraints and Monetary Policy: The Inflation Tax $ Net Worth Channel!

Research paper thumbnail of Credit Cycle" in an OLG Economy with Money and Bequest

In the late '90s Kiyotaki and Moore (KM) put forward a new framework (Kiyotaki and Moore,199... more In the late '90s Kiyotaki and Moore (KM) put forward a new framework (Kiyotaki and Moore,1997) to explore the Financial Accelerator hypothesis. The original model was framed in an Infinitely Lived Agent context (ILA-KM economy). As in KM we develop a dynamic ...

Research paper thumbnail of Asset prices and monetary policy: a new view of the cost channel

Should the central bank act to prevent "excessive" asset price dynamics or should it wait until t... more Should the central bank act to prevent "excessive" asset price dynamics or should it wait until the boom spontaneously turns into a crash and intervene afterwards to attenuate the the fallout on the real economy? The standard "three equation" New Keynesian framework is inadequate to analyse this issue for the very simple reason that asset prices are not explicitly included in the model. There are two straightforward ways to take into account asset price dynamics in this framework. First of all, the objective function of the central bankusually de…ned in terms of in ‡ation and the output gap -could be "augmented" to take into account asset price in ‡ation. Second, expected asset price in ‡ation can a¤ect the IS curve through a wealth e¤ect. In this paper we follow a di¤erent route. In our model in fact, the expected asset price dynamics will be eventually incorporated into 1 the NK Phillips curve. This is due to the assumption of a cost channel for monetary policy which is activated whenever monetary policy a¤ects asset prices and dividends. In fact they determine the cost of external …nance in the simple "equity only" …nancing model we consider, abstracting for simplicity from internal funds and the credit market.

Research paper thumbnail of Financial Instability in an Agent-based Model

Research paper thumbnail of Heterogeneity and aggregation in a financial accelerator model

In this paper we present a macroeconomic model in which changes in the variance (and higher momen... more In this paper we present a macroeconomic model in which changes in the variance (and higher moments of the distribution) of …rm's …nancial conditions -i.e. "distributive shocks"-are bound to play a crucial role in the determination of output ‡uctuations. Firms di¤er by degree of …nancial robustness, which a¤ect (optimal) investment in a bankruptcy risk context (à la Greenwald-Stiglitz). As to households, for the sake of simplicity, we assume that they are homogeneous in every respect so that we can adopt the representative agent hypothesis. We can explore the properties of the macro-dynamic model either via the study of the twodimensional map de…ning the laws of motion of the average equity ratio and of the variance of the distribution or via simulations in a multiagent framework.

Research paper thumbnail of 10 Financial instability and agents’ heterogeneity: a post Minskyan research agenda

Research paper thumbnail of PQ strategies in monopolistic competition: Some insights from the lab

We present results from 50-rounds experimental markets in which firms decide repeatedly both on p... more We present results from 50-rounds experimental markets in which firms decide repeatedly both on price and quantity of a perishable good. The experiment is designed to study the price-quantity setting behavior of subjects acting as firms in monopolistic competition. In the implemented treatments subjects are asked to make both production and pricing decisions given different information sets. We investigate how subjects decide on prices and quantities in response to signals from the firms' internal conditions, i.e., individual profits, excess demand, and excess supply, and the market environment, i.e., aggregate price level. We find persistent heterogeneity in individual behavior, with about 46% of market followers, 28% profit-adjusters and 26% demand adjusters. Nevertheless, prices and quantities tend to converge to the monopolistically competitive equilibrium and we find that subjects' behavior is well described by learning heuristics.

Research paper thumbnail of Emergent dynamics of a macroeconomic agent based model with capital and credit

Journal of Economic Dynamics and Control, 2015

ABSTRACT In this paper we present and discuss a Macroeconomic Agent-Based Model with Capital and ... more ABSTRACT In this paper we present and discuss a Macroeconomic Agent-Based Model with Capital and Credit (CC-MABM) which builds upon the framework put forward by Delli Gatti et al. (2011). The novelty of this model with respect to the previous framework consists in the introduction of a stylized supply chain where upstream firms – i.e. producers of capital goods (K-firms) – supply a durable and sticky input (capital) to the downstream firms, who produce consumption goods (C-firms) to be sold to households. Both C-firms and K-firms resort to bank loans to satisfy their financing needs. There are two-ways feedbacks between firms and markets which yield interesting emerging properties at the macro level. We show that the interaction of upstream and downstream firms and the evolution of their financial conditions – in a nutshell: Capital and Credit – are essential ingredients of a “crisis” i.e. a sizable slump followed by a long recovery.

Research paper thumbnail of Was Bernanke Right? Targeting Asset Prices May not be a Good Idea After All

International Symposia in Economic Theory and Econometrics, 2015

Research paper thumbnail of Experiments on expectations in macroeconomics and finance

Research paper thumbnail of Intertemporal Greenwald-Stiglitz

Research paper thumbnail of Animal Spirits, Heterogeneous Expectations and the Amplification and Duration of Crises

SSRN Electronic Journal, 2000

We introduce a simple equilibrium model of a market for loans, where households lend to firms bas... more We introduce a simple equilibrium model of a market for loans, where households lend to firms based on heterogeneous expectations about their loan default probability. Agents select endogenously among heterogeneous expectation rules, based upon their relative performance. Due to strong nonlinearities a small fraction of pessimistic traders already has a large aggregate effect, leading to a crisis characterized by high contract rates for loans and low output. Our stylized model illustrates how animal spirits and heterogeneous expectations may amplify boom and bust cycles and, in particular, how endogenous coordination on pessimistic expectations amplifies crises and slows down recovery.

Research paper thumbnail of Individual Expectations and Aggregate Macro Behavior

SSRN Electronic Journal, 2000

The way in which individual expectations shape aggregate macroeconomic variables is crucial for t... more The way in which individual expectations shape aggregate macroeconomic variables is crucial for the transmission and effectiveness of monetary policy. We study the individual expectations formation process and the interaction with monetary policy, within a standard New Keynesian model, by means of laboratory experiments with human subjects. We find that a more aggressive monetary policy that sets the interest rate more than point for point in response to inflation stabilizes inflation in our experimental economies. We use a simple model of individual learning, with a performance-based evolutionary selection among heterogeneous forecasting heuristics, to explain coordination of individual expectations and aggregate macro behavior observed in the laboratory experiments. Three aggregate outcomes are observed: convergence to some equilibrium level, persistent oscillatory behavior and oscillatory convergence. A simple heterogeneous expectations switching model fits individual learning as well as aggregate outcomes and outperforms homogeneous expectations benchmarks.

Research paper thumbnail of INTEREST RATE RULES AND MACROECONOMIC STABILITY UNDER HETEROGENEOUS EXPECTATIONS

Macroeconomic Dynamics, 2013

High degrees of relative risk aversion induce indeterminacy in cashin-advance economies. This pap... more High degrees of relative risk aversion induce indeterminacy in cashin-advance economies. This paper Þnds that Taylor-style policies can pre-empt such sunspot equilibria. SpeciÞc policy recommendations depend on the fundamentals of the economy, i.e. the empirically true value of coefficient of relative risk aversion. * This paper was written while I was a DFG Heisenberg Fellow. I would like to thank the Federal Reserve Bank of San Francisco for its hospitality as well as Chuck Carlstrom and one anonymous referee for helpful comments.

Research paper thumbnail of Learning in a credit economy

Journal of Economic Dynamics and Control, 2009

In this paper we analyze a credit economy à la Kiyotaki and Moore (JPE, 1997) enriched with learn... more In this paper we analyze a credit economy à la Kiyotaki and Moore (JPE, 1997) enriched with learning dynamics, where both borrowers and lenders need to form expectations about the future price of the collateral. We …nd that under homogeneous learning, the MSV REE for this economy is E-stable and can be learned by agents, but when heterogeneous learning is allowed and uncertainty in terms of a stochastic productivity is added, expectations of lenders and borrowers can diverge and lead to bankruptcy (default) on the part of the borrowers.

Research paper thumbnail of Introduction to the Special Issue on ‘Rethinking policies when heterogeneity matters’

Journal of Economic Dynamics and Control, 2013

Research paper thumbnail of E Pluribus Unum: Macroeconomic modelling for multi-agent economies

Journal of Economic Dynamics and Control, 2013

From the point of view of the average macroeconomist, agent based modelling has an obivious drawb... more From the point of view of the average macroeconomist, agent based modelling has an obivious drawback: It makes impossible to think in aggregate terms. The modeller, in fact, can reconstruct aggregate variables only "from the bottom up" by summing the individual quantities. As a consequence the interpretation of the trasmission mechanism of shocks is somehow arbitrary. We propose a modelling strategy which reduces the dimensionality of an agent based framework by replacing the actual distributional features (in our model: the distribution of …rms'…nancial conditions) with the …rst and second moments of the distribution itself. The main message is that the di¢ culty of thinking in macroeconomic terms when dealing with multi-agent economies can be circumvented by means of an appropriate aggregation procedure -which we label the Modi…ed-Representative Agent -such that the distribution of agents'characteristics can be approximated by (at least) the (…rst and second) moments of the distribution. The moments of the distribution play the role of macroeconomic variables.

Research paper thumbnail of Borrowing constraints and complex dynamics in an OLG framework

Journal of Economic Behavior & Organization, 2009

In this paper we model an OLG economy à la Kiyotaki and Moore whose novel feature is the role of ... more In this paper we model an OLG economy à la Kiyotaki and Moore whose novel feature is the role of money as a store of value and of bequest as a source of funds to be “invested” in landholding. The dynamics generated by the model are generally characterized by ...

Research paper thumbnail of DINAMICHE COMPLESSE IN UN MODELLO MACROECONOMICO DI NON NEUTRALITA'DELLA MONETA A GENERAZIONI SOVRAPPOSTE

Negli ultimi decenni molta letteratura economica si è occupata di indagare gli effetti, nel lungo... more Negli ultimi decenni molta letteratura economica si è occupata di indagare gli effetti, nel lungo periodo, dell'inflazione in mercati finanziari imperfetti (per esempio, Body & Smith (1998), Cordoba & Ripoll (2004), Ragot (2006)). Alcuni di questi modelli riguardano, in particolare, lo ...

Research paper thumbnail of Borrowing Constraints and Monetary Policy: The Inflation Tax $ Net Worth Channel!

Research paper thumbnail of Credit Cycle" in an OLG Economy with Money and Bequest

In the late '90s Kiyotaki and Moore (KM) put forward a new framework (Kiyotaki and Moore,199... more In the late '90s Kiyotaki and Moore (KM) put forward a new framework (Kiyotaki and Moore,1997) to explore the Financial Accelerator hypothesis. The original model was framed in an Infinitely Lived Agent context (ILA-KM economy). As in KM we develop a dynamic ...

Research paper thumbnail of Asset prices and monetary policy: a new view of the cost channel

Should the central bank act to prevent "excessive" asset price dynamics or should it wait until t... more Should the central bank act to prevent "excessive" asset price dynamics or should it wait until the boom spontaneously turns into a crash and intervene afterwards to attenuate the the fallout on the real economy? The standard "three equation" New Keynesian framework is inadequate to analyse this issue for the very simple reason that asset prices are not explicitly included in the model. There are two straightforward ways to take into account asset price dynamics in this framework. First of all, the objective function of the central bankusually de…ned in terms of in ‡ation and the output gap -could be "augmented" to take into account asset price in ‡ation. Second, expected asset price in ‡ation can a¤ect the IS curve through a wealth e¤ect. In this paper we follow a di¤erent route. In our model in fact, the expected asset price dynamics will be eventually incorporated into 1 the NK Phillips curve. This is due to the assumption of a cost channel for monetary policy which is activated whenever monetary policy a¤ects asset prices and dividends. In fact they determine the cost of external …nance in the simple "equity only" …nancing model we consider, abstracting for simplicity from internal funds and the credit market.

Research paper thumbnail of Financial Instability in an Agent-based Model

Research paper thumbnail of Heterogeneity and aggregation in a financial accelerator model

In this paper we present a macroeconomic model in which changes in the variance (and higher momen... more In this paper we present a macroeconomic model in which changes in the variance (and higher moments of the distribution) of …rm's …nancial conditions -i.e. "distributive shocks"-are bound to play a crucial role in the determination of output ‡uctuations. Firms di¤er by degree of …nancial robustness, which a¤ect (optimal) investment in a bankruptcy risk context (à la Greenwald-Stiglitz). As to households, for the sake of simplicity, we assume that they are homogeneous in every respect so that we can adopt the representative agent hypothesis. We can explore the properties of the macro-dynamic model either via the study of the twodimensional map de…ning the laws of motion of the average equity ratio and of the variance of the distribution or via simulations in a multiagent framework.

Research paper thumbnail of 10 Financial instability and agents’ heterogeneity: a post Minskyan research agenda

Research paper thumbnail of PQ strategies in monopolistic competition: Some insights from the lab

We present results from 50-rounds experimental markets in which firms decide repeatedly both on p... more We present results from 50-rounds experimental markets in which firms decide repeatedly both on price and quantity of a perishable good. The experiment is designed to study the price-quantity setting behavior of subjects acting as firms in monopolistic competition. In the implemented treatments subjects are asked to make both production and pricing decisions given different information sets. We investigate how subjects decide on prices and quantities in response to signals from the firms' internal conditions, i.e., individual profits, excess demand, and excess supply, and the market environment, i.e., aggregate price level. We find persistent heterogeneity in individual behavior, with about 46% of market followers, 28% profit-adjusters and 26% demand adjusters. Nevertheless, prices and quantities tend to converge to the monopolistically competitive equilibrium and we find that subjects' behavior is well described by learning heuristics.