Technology shocks and trade in a network: How business cycles emerge from the

interaction of autonomous agents.

Davoud Taghawi-Nejad

The model

1. Agents own one out of four production goods

2. They trade these goods in a network of trading partners

3. They use the goods to produce a final good

4. When profits decrease, agents change their trading partners

5. New technology is being introduced in fixed intervals

The Representation

Agents are represented as nodes

Lines connect two trading partners

Circles are agents that look for new trading partners because they had decreased profits

Squares are agents that introduce a new technology

Key Assumption

Agents with decreased profits change their trading

partners.

A new technology affects the trading partners

If an agent introduces a new technology he changes his demand and supply. The agents connected to him might have a decrease in profit

A snowball effect is started

Agents with decreased profits change trading partners. Some of the affected agents can have a decrease in

profits. These agents change the trading partners, too. This affects other agents, who in turn start changing

partners.

Disconnected agent produces less, that decreases the GDP

When agents lose a profitable connection they are less productive

The GDP decreases. When agents find new trading partners and regain their

profits the GDP increases.

Agent 14 changes technology

The Profit of the agents marked with Pd is decreased

The agents marked with change, change their trading partners

More agents, marked with Pd, have decreased profits

This in turn leads to new changes and other agents to have decreased profits

A complete run of the agent-based simulation with 20 agents

Stable networks

Sometimes the network is so efficient that agents do not find new trading partner despite their efforts

This corresponds to a high GDP phase

Innovation

The agent 20 represented by a square innovates.

This usually triggers changes in the network

A phase of low GDP starts

The ACF shows that the GDP is cyclical

The ACF of the US GDP for comparison

Another run with different parameters is more similar to US GDP (different scale)