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Pascal Seppecher (2012) Flexibility of wages and macroeconomic instability in an agent-based computational model with endogenous money”, Macroeconomic Dynamics, vol. 16, n. S2, pp. 284-297

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Abstract: We present a model of a dynamic and complex economy in which the creation and the destruction of money result from interactions between multiple and heterogeneous agents. In the baseline scenario, we observe the stabilization of the income distribution between wages and profits. We then alter the model by increasing the flexibility of wages. This change leads to the formation of a deflationary spiral. Aggregate activity decreases and unemployment increases. The macroeconomic stability of the model is affected and eventually a systemic crisis arises. Finally, we show that the introduction of a minimum wage would have made it possible to boost the aggregate demand and to avoid this crisis.

Keywords: Agents-Based Modeling, Labor Market Dynamics, Monetary Economics

November 13, 2010 | Comments Closed