James Bullard (Federal Reserve Bank of St. Louis)
Title: Improved Macroeconomics for the 21st Century

Abstract: Structural economic modeling is an indispensible tool for macroeconomists and a vital component for designing effective economic policy.  We are nowhere near where we need to be in terms of having a useful, comprehensive macroeconomic model that can help meet the many challenges the U.S. and the rest of the world face going forward. The level of complexity is beyond what individual researchers can handle --- a more aggressive and better-funded research effort in macroeconomics is needed.  A comprehensive macroeconomic model should allow us to understand trade-offs of policy choice on a more global level.  It should also include frictions in the intermediation process under its assumptions.  It should integrate phenomena such as bank runs and financial panics so that these outcomes can be evaluated, as well as analyze stabilization policies in conjunction with growth policies among other features.  The task at hand is daunting but a great deal is spent by nations in other large projects which are arguably of lesser consequence.

Thomas Lux (Christian-Albrechts-Universitaet zu Kiel)
Title: Explaining and Forecasting the Psychological Component of Economic Activity

Abstract: We develop a methodology for estimating the parameters of dynamic opinion or expectation formation processes with social interactions. We study a simple stochastic framework of a collective process of opinion formation by a group of agents who face a binary decision problem. The aggregate dynamics of the individuals' decisions can be analyzed via the stochastic process governing the ensemble average of choices. Numerical approximations to the transient density for this ensemble average allow the evaluation of the likelihood function on the base of discrete observations of the social dynamics. This generic approach can be used to estimate the parameters of various opinion formation processes from a variety of available aggregate data. Our applications include: (i) identification of interaction effects in a well-known business climate index as well as (ii) analysis of sentiment data from the German stock market. In both cases we find strong evidence of strong social interactions with the potential of generating abrupt swings in the average mood of respondents. In this way, the psychological component or the imprints of `animal spirits' in economic data can be identified.

Geert Jan Olsder (TU Delft)
Title: Two Variations of Stackelberg Games

Abstract: After a brief introduction to conventional Stackelberg games, two variations will be discussed:

• Inverse Stackelberg games
• Consistent conjectural variations games

In the analysis of both classes one routinely enters the realm of the theory of composed functions which is not at all appetizing from a mathematical point of view.

In Inverse Stackelberg games the leader (or: leaders) announces his strategy (strategy as opposed to decisions in the conventional Stackelberg games) as a mapping from the follower's (or: followers') decision space into his own decision space. Arguments for studying such problems are given. Approaches different from the composed functions analysis will be given, mainly by studying specific examples. Also problems with more than one leader and/or follower will be given and it is here where the adages about 'divide and conquer' and 'two captains on a ship' will be given a mathematical underpinning. Time-varying extensions (i.e., one enters the area of dynamic game theory) will be given.

Games in the context of consistent conjectural variations (CCV) can be viewed as a kind of Stackelberg game in which all players act as leaders. Very few general existence and uniqueness results are known; a discussion will be given.  In theoretical computer science one sometimes encounters publications on 'learning in logistics', 'adaptive strategies' of which the contents appear to be algorithmic versions of the CCV-concept.

William Sandholm (University of Wisconsin, Madison)
Title: Logit Evolution in Potential Games: Large Deviations, Reversibility, and Equilibrium Selection

Abstract: We consider a population of agents who recurrently play a large-population potential game, updating their choices over time by applying the logit choice rule.  While the evolution of behavior is described by a Markov chain, it is known that over finite time spans, when the population is large enough, its aggregate behavior is well-approximated by solutions to an ordinary differential equation called the logit dynamic. These solutions ascend the game's logit potential function and converge to its logit equilibria.

We analyze the behavior of the Markov chain over longer time spans using tools from large deviations theory.  We obtain precise asymptotic formulas for the probabilities of excursions against the flow of the logit dynamic, including excursions between distinct logit equilibria.  Combining this large deviations analysis with macroscopic reversibility arguments and a graph-theoretic analysis, we prove that the rates of decay of stationary distribution weights are determined by the values of the logit potential function.  Hence, the logit equilibrium that maximizes logit potential is stochastically stable in the large population limit.

Anastasios Xepapadeas (Athens University of Economics and Businsess)

Title: The Emergence of Optimal Agglomeration in Dynamic Economics

Abstract:We analyze endogenous pattern formation resulting from forward-looking optimizing behavior of economic agents in the presence of spatial spillovers
modeled by continuous kernels. We use Fourier methods to identify necessary and sufficient conditions for the emergence of optimal agglomeration through an optimal spillover induced instability of a spatially homogeneous steady state. We apply our methods to study the emergence of optimal agglomeration for a rational expectations equilibrium and an optimal growth model. We believe that our analytical methods can be used to systematically study optimal agglomeration and clustering in dynamic economics.