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Why are Economies Unstable? Research Project

Macroeconomic Fluctuations as Emergent Behaviour

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Principal Investigator: Professor Franck Portier

Franck Portier is Professor of Macroeconomics at University College London, Senior Member of the Institut Universitaire de France and Research affiliate at CEPR. His primary research field is the theory and empirics of business cycles. In particular, he has been working intensively on the macroeconomic impact of changes in perceptions about the future. Franck Portier obtained his Ph.D. from Université Paris I Panthéon-Sorbonne and previously held positions at the Toulouse School of Economics and CREST.

Project Summary

Flocking birds is a famous natural life example of emergent phenomena —i.e. aggregate phenomena whose properties are very different from the ones of the individuals involved, when taken separately. There has been little effort in economics at understanding emergent phenomena in a systematic way. The existence of a two-way feedback between microstructure and macrostructure has been recognised for a very long time. There are many examples where aggregate outcomes may display instability when individual level decisions are aimed at favouring stability, but it is unclear what are the key forces driving such phenomena.


In our work, we aim at filling this gap in two ways. First, we study the properties of a reduced form dynamic model that can be seen alternatively as the simplest Agent-Based Model or as the simplest Dynamic Stochastic General Equilibrium model in which the assumption of rational expectations can be crucial. Second, we dig into the micro-foundations of emergent phenomena in macro by studying « dynamic Cooper & John [1988]’s economies », which are economies with strategic interactions and accumulation.

Main findings of the first study, « Emergent Equilibrium and the role of Forward-Lookingness in a Dynamic Macroeconomic Model with Weak Complementarities » are that hysteresis and limit cycle phenomena arise naturally from simple dynamics models with interactions, with or without rational expectations, while sunspot equilibria (obviously) require agents to be forward looking with rational expectations.


Main findings of the second study, « Dynamic Cooper and John's Economies: The role of Coordination Failures and Accumulation in Equilibrium Emergent Phenomena » are as follows. First, complementarities between actions favour determinate hysteresis and cycles, substitutabilities between actions favour determinacy and stability. Second, interactions between aggregate action and individual stock (complementarities or substitutabilities) favour indeterminacy and hence sunspot equilibria. Third, in all the cases, whether current stock marginally increases or decreases incentives to accumulate is the key parameter to determine which type of bifurcation will occur or whether the dynamics will be oscillating or not.



Emergent Equilibrium and the Role of Forward - Lookingness in a Dynamic Macroeconomic Model with Weak Complementarities

Paul Beaudry, Dana Galizia, and Franck Portier | January 21, 2021

Dynamic Cooper and John's Economies: The Role of Coordination and Accumulation in Equilibrium Emergent Phenomena

Paul Beaudry, Dana Galizia, and Franck Portier | January 21, 2021

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