Academic Papers

Tipping points in macroeconomic agent-based models

The aim of this work is to explore the possible types of phenomena that simple macroeconomic Agent-Based models (ABM) can reproduce. Our motivation is to understand the large macro-economic fluctuations observed in the ‘Mark I’ ABM devised by D. Delli Gatti and collaborators. Our major finding is the existence of a first order (discontinuous) phase transition between a ‘good economy’ where unemployment is low, and a ‘bad economy’ where unemployment is high. We show that this transition is robust against many modifications of the model, and is induced by an asymmetry between the rate of hiring and the rate of firing of the firms. This asymmetry is induced, in Mark I, by the interest rate. As the interest rate increases, the firms become more and more reluctant to take further loans. The unemployment level remains small until a tipping point beyond which the economy suddenly collapses. If the parameters are such that the system is close to this transition, any small fluctuation is amplified as the system jumps between the two equilibria. We have also explored several natural extensions. One is to allow this hiring/firing propensity to depend on the financial fragility of firms. Quite interestingly, we find that in this case, the above transition survives but becomes second order. We also studied simple wage policies and confidence feedback effects, whereby higher unemployment increases the saving propensity of households. We observe several interesting effects, such as the appearance of acute endogenous crises, during which the unemployment rate shoots up before the economy recovers. We end the paper with general comments on the usefulness of ABMs to model macroeconomic phenomena, in particular in view of the time needed to reach a steady state.


It is human nature to think wisely and to act absurdly – Anatole France