Demand, credit and macroeconomic dynamics: A microsimulation model

We develop a microsimulation model for the macroeconomic business cycle. Our model is based on three main ideas: (i) we want to specify how macroeconomic coordination is achieved without a dominating influence of price mechanisms, (ii) we want to incorporate the stock-flow-consistent approach that has become popular in post-Keynesian macroeconomics, and (iii) we want to allow for bankruptcies as a major mechanism in the business cycle. Compared to existing stock-flow-consistent models, our model has relatively few equations. It is operationalized using micro, agent-based simulation. The results show a clear business cycle that is driven by accumulation of financial assets and the effects this has on the real economy. By changing some of the key parameters, we show how the nature of the business cycle changes as a result of changes in the assumed behaviour of agents.

Keywords: stock-flow consistent macroeconomic models; agent-based macroeconomic models

JEL Codes: E00, E32, B5, B52